Insurance in Halakha (2)

 

III. The Nature of Insurance

 

     Discussions of the status of insured articles have found their way into innumerable areas of halakha. We will try and examine all of these discussions within the framework of the following question: Does insurance "insure" an object - making it certain - or does it merely constitute a bet that the object will suffer a loss? A more precise way of stating the question is, are the payments conditioned on the loss to the owner, or on the loss of the object?

 

     Let us illustrate the contrast with two polar examples: At the "insurance" extreme is a warranty. A warranty - which is a kind of insurance - is designed solely to guarantee that the customer has a usable purchase. The warrantor never pays money, but only repairs or replaces the purchase. The purchase is now an insured one, and the purchases is guaranteed that he will not suffer loss from a defect in the product. At the "bet" extreme is bookmaking. A London betting parlor may be able to give you odds that a particular space launch will end in misfortune, but someone who bets against the launch is obviously only making a bet, not "insuring" himself against the launch's failure.[27]

 

     An important conceptual difference between the two is in the effect of involvement. Warranties are only given when both parties have an interest in the object's well-being: the warrantor, because his reputation depends on its quality, and the consumer, because he continually uses the object. Gambling, on the contrary, is legal only if both parties have no independent interest in the outcome: it is obviously illegal for athletes to make, or take, bets on matches in which they participate; it is even illegal to bet on events in which one has inside information.

 

     Another conceptual difference is the direction of risk. Acquiring a warranty is a risk-reducing act; for a small sum one is insured against a large loss, and so one's final status is more or less stabilized. Making a bet, by definition, is a risky investment - that is what we mean by a gamble. The bettor takes his good money and throws it away on a small chance that he can make a large sum.[28]

 

     One practical distinction which is commonplace in secular law is the question of double insurance. If a person has two lottery tickets, he can clearly collect on both of them - he has won both bets. By contrast, if a person has two warranties,[29] it is clear that he will not be able to have the purchase repaired twice.[30]

 

A. Beneficiary Different from the Owner

 

     Several cases arise in the context of a beneficiary who is not the owner of the object. Normally, insurers do not allow someone who is not the owner to insure an object,[31] but some cases can slip between the cracks. The relevance to our inquiry is obvious: if insurance is an attribute of the object, the insurance benefits will accrue to the owner, even if he is not the one who actually insured the object.[32] But if the policy is a "side bet," the money will go to the third party who paid the premiums and put his money "on the table".

 

1. Insurance By A Tenant

 

     Rav Yosef Shaul Natanzon[33] discusses the case of a tenant who took out insurance on the rented apartment; later the apartment burnt down. The conclusion of the Shoel U-meshiv is that if the insurance company agrees that a third party can pay the premiums and receive the benefits, there is no question that the benefits belong to him.[34]

 

     It is possible to see this discussion as an application of our inquiry. If property can only be insured by the owner, this proves that it is an attribute of ownership; and in this case only the owner can collect. To the extent that a third party can insure, this indicates that the insurance is a "side bet;" then whoever pays the premiums can collect.

 

     Likewise, the Or Sameach,[35] in a similar case, explicitly conditions the ruling on the question of whether a tenant is permitted to insure an apartment. The intention of the tenant was to collect the benefits (at a profit) if the apartment was damaged, and so he should be able to do so if it is permissible for him to insure the apartment.

 

     An identical case was discussed by Rav Yitzchak Izaak Ha-levi;[36] he also concluded that the tenant is entitled to the insurance benefits. This was also the conclusion of Maharash Engel,[37] who explicitly ties his decision to the view of insurance benefits as a return on the premiums and not as an attribute of the house.

 

2. Selling an Insured Object

 

     Another way in which the owner of the insurance can be different from the owner of the insured asset is in the case of a sale. Rav Natanzon[38] discusses the case of a person who insured his house and then sold it, but did not transfer the insurance policy to the buyer. Afterwards the house burnt down, and the insurance company duly paid the benefits to the seller. Rav Natanzon refers to his earlier responsum: if indeed it is possible for someone to insure property which is not his, then the benefits belong to the seller; otherwise they belong to the buyer.

 

     The Maharsham[39] discusses an identical case. He concludes that the insurance benefits properly belong to the seller, who paid the premiums. This was also the conclusion of the Teshurat Shai,[40] who explicitly reasons that the insurance benefits are not connected to the insured house, but rather are in return for the insurance premiums.

 

     It follows that fire insurance is viewed by all these authorities as a "side bet." This is even the ruling of Rav Natanzon, because in fact, the fire insurance company permitted anyone who paid premiums to receive benefits. And the Or Sameach writes that a tenant (though not an outside party) is permitted to insure an apartment.

 

     This seems like a very surprising "policy", given the usual requirement for an "insurable interest" as described above. It seems from the details given in the responsa that the fire insurance described differs greatly from the kind of fire insurance customary today.[41] It certainly suggests that we can not extrapolate from these rulings to other kinds of insurance.

 

B. Kinyan Ma'ot

 

     Another question which touches on our inquiry is discussed in the Pitchei Teshuva.[42] The question regards kinyan ma'ot, an acquisition effected by payment of money. We rule like R. Yochanan who holds that even though payment alone effects a conveyance according to the Torah, the Sages revoked this kind of sale. The reason is that if payment is made but the purchase is not transmitted to the buyer, the seller will not exert himself adequately to protect the object from damage.[43]

 

     What if the object of sale is insured - can it be purchased via money payment? If we view the object as "protected," then the question depends on how we rule regarding protected objects in general. Does Chazal's legislation against money effecting a sale still apply? The Rema[44] rules that any object which is not subject to damage can indeed be acquired by payment. The Shakh,[45] however, disputes the Rema's ruling, holding that even an object which is not subject to damage is still subject to the regulation limiting kinyan ma'ot.

 

     According to the Shakh's approach, there is no connection between kinyan ma'ot and the Pitchei Teshuva's question. Even if the object is protected, this will not enable a kinyan to take place. According to the Rema, on the other hand, if we view the object as "protected," a kinyan could then take place with money alone if the merchandise were insured.

 

     The Pitchei Teshuva explicitly relates this case to our question about insurance. At the beginning of the discussion cited here, he supports the Shakh's position, and writes that it is for this reason that insured articles can not be purchased by payment. According to the Rema, we would be able to do so. It seems that the Pitchei Teshuva views the insurance as an attribute of the object; since the object is "protected," and since protected objects according to the Rema are transferable by kinyan ma'ot, it follows that according to the Rema, insured objects could be acquired by money payments. The Arukh Ha-shulchan [46] seems to concur in the reasoning of the Pitchei Teshuva as well as in his conclusion; he apparently also subscribes to the "attribute" approach.[47]

 

     It seems to me that there is additional evidence that the Arukh Ha-shulchan takes the "attribute" approach. He rules that an insurance policy can not be transferred without transferring the underlying asset, thus indicating a very intimate bond between the policy and the insured object.[48]

 

C. "Double Dipping"

 

     A question that finds its way into the literature in innumerable forms is the question of "double dipping." If the owner of an object will receive restitution from the insurance company, is the party with direct responsibility still obliged to pay? The alternative responsible party may be a tortfeasor, a thief, a responsible bailiff, the finder of a lost object, and so on.

 

     The main question discussed in the posekim is the general one of the source of obligation. There are two main possibilities: the reality of damage or loss to the object (even if no one suffers loss as a result), or the causing of loss to the owner (or some other litigant).[49]

 

     If the obligation stems from the actual damage to the object, having insurance on the object is of no significance. The only possibility of exempting the damager would be to say that the insurance is so united with the object that it creates a "protected object" which is as it were not even damaged - fire insurance makes the object fire-proof, maritime insurance makes it sink-proof, and so on. This seems a rather far-fetched extension of the "attribute" idea.[50]

 

     If we view the obligation as stemming from a loss to the owner, then our inquiry has relevance. If the insurance is part of the object, then the owner has suffered no loss; if it is a "side bet," then he has suffered a loss which incidentally was "hedged" by an offsetting gain.

 

     There is a dispute, but the general tendency among the posekim is that the responsible party is obligated to pay even if some side circumstance results in preventing the owner of the damaged object from suffering loss. Still, there are distinctions between obligations due to damage, loss, self-incurred obligations, etc.; we need to examine each case and the reasons for the ruling.

 

     Below are some specific discussions of cases of "double dipping."

 

1. Responsibility by the Tenant

 

     The Or Sameach [51] discusses a case where the tenant agreed to assume risk of fire, but the owner took out insurance in addition. The conclusion is that the tenant is required to uphold his side of the agreement even though no loss was caused to the owner (since the insurance reimbursed him).

 

     The main discussion is on the fundamental point of whether an obligation incurred in order to protect someone from loss is in force even if, in fact, no loss occurs. The main evidence is from a gemara [52] which discusses a deal between two travelers whose pack animals are drowning. The owner of the cheaper donkey offers to ignore his own animal in order to save his fellow's beast, in return for an agreed-upon payment. Even though the payment is specifically intended to make up the loss of the salvor's property, the gemara rules that the payment is due even if by Divine mercy the salvor's beast manages to survive.

 

     From this the Or Sameach concludes that the tenant's obligation, though intended to protect the owner from loss, is binding even if in fact the owner does not suffer a loss. Since the "unconditional obligation" approach does not distinguish between whether there was or was not a loss to the owner, it seems that we can not infer anything about the Or Sameach's approach to insurance in general.

 

     However, the Or Sameach adds another point: "So much the more in our case. Certainly the fact that the owner paid premiums to the insurance company in return for assuming the risk on his house, can not exempt the tenant from the responsibility he accepted."  This "a fortiori" seems to assume that here we do not in fact say that the owner has not suffered a loss, rather that he has made an offsetting gain - in accordance with the "side bet" approach.

 

2. Damage or Loss to an Insured Object

 

     Another responsum of the Maharsham [53] discusses the case of a tort. If someone damages an insured object, is he liable for repayment? The claim of the insured party was two-fold: one is that the insurance payments do not mean he suffered a loss, but rather are only his "return" on his premiums. This is an obvious expression of the "side bet" view. The second claim is that he is, in effect, suing on behalf of the insurance company, like the case of a bailiff who has the right to sue the damager on behalf of the bailment's owner.

 

     The Maharsham supports the claimant on both counts. In particular, he describes insurance as "earnings from business dealings" and writes that the insured "arranged for himself an outside deal." This is in harmony with the previously mentioned decision of the Maharsham.[54]

 

     But in Harei Besamim,[55] a neighbor responsible for damage to an insured house sought to exempt himself on the basis that he caused no loss to the owner, since the house was insured. His conclusion is that the damager is indeed exempt. It follows that at least in the case of damage by fire, the Harei Besamim holds that the source of obligation to pay is the loss to the owner. It also follows the he adopts the "attribute" approach - since the "side bet" approach holds that there was indeed a loss to the owner, which  was offset by the insurance payment.

 

     The Chelkat Yaakov [56] discusses whether there is an obligation to return an object which was insured against loss. The reply is that the obligation to return a lost object is not dependent on whether the owner suffers a loss; such an "unconditional obligation" approach, as we demonstrated, does not allow us to infer what the approach to insurance is. At most, it demonstrates that the Chelkat Yaakov does not subscribe to the extreme "protected object" view according to which we would consider the object not lost at all.

 

D. Insurance Viewed Through the Prism of Halakha

 

     Anyone familiar with insurance will feel that we have stood the double-dipping question on its head. The question is not if the responsible agent has to pay even if there is insurance; rather the question is whether the insurance company should pay if there is another responsible agent! And the answer is also clear: it is a standard part of every insurance contract that no benefits can be paid if the insured can receive payment from some other party.[57] Furthermore, it is incumbent on the insured party to help the insurance company in any way possible to recover its payment, and certainly it is improper to seek such payment on one's own!

 

     This problem is hinted at in the Maharsham. It seems that his approach is that it is obvious that the money received from the damager should be turned over to the insurance company, but that this question is outside the jurisdiction of the beit din. (We also mentioned that the kind of insurance policy mentioned in the Maharsham may be significantly different from the kind of property insurance common today.)

 

     The problem does arise in a case where the one responsible for damage is liable in Torah law, but not according to the insurance agreement. Such a case is discussed in the Minchat Yitzchak.[58] A person borrowed his friend's car and was involved in an accident. The insurance company knew exactly the circumstances of the accident, and agreed to pay the claim - it did not claim that the driver was liable. But the injured party wanted to recoup additional losses from the borrower, on the grounds that the latter was negligent according to Torah law. The Minchat Yitzchak cites in very uncertain terms the accepted norms of the insurance agreement: "It would not even occur to any moral person to demand payment from the borrower as well, since he receives payment from the insurance company, and it is also against the law."

 

     In other words, all of the "double dipping" questions arise at the "seam" between secular and Torah law. Such cases certainly can not arise within the framework of the secular law itself, since the insurance agreements obviate it. Within the framework of the beit din also, circumstances usually dictate that one side alone is liable. But since there are differences in jurisdiction - and in extent of responsibility - between the two systems, cases can arrive where two parties can end up bearing responsibility for the accident.[59]

 

     I would go farther and claim that the whole question of whether insurance is a "side bet" or an "attribute" stems from this "seam." There can be no question that the standard insurance contract stands firmly on the "attribute" side of the fence. Here are a few examples:

 

     1) Attitude to risk. We pointed out that true insurance is motivated by aversion to risk. Risk is minimized by tying the payment as closely as possible to the loss suffered by the insured.

 

     2) Insurable interest: insurance can only be taken out by someone who in fact is exposed to a loss from damage to an object: an owner or in some cases a creditor. Also, it is possible to insure only up to the amount that the owner is exposed to. This testifies to the intimate connection between payout and effective loss.

 

     3) Prohibition against double-dipping. The insurance company is insuring the customer against loss; if there is no loss, there is no payment.

 

     But contractual obligation conditions made under the jurisdiction of the secular law may be adjudicated in Beit Din in a way which is far from the ostensible intentions of the contracting parties. There are several reasons for this tendency.

 

     Sometimes, it stems from the fact that there is no halakhic equivalent of the legal concept which motivates the secular law; this is the case with "legal personality" according to many authorities. In this case, the judgment can automatically capture only that subset of concepts which the halakha in fact recognizes; the result may be very different from that which would result from an application of the secular-law concept.[60]

 

     A related, but separate problem, is that in general the secular law relies more heavily on intent in adjudicating contract law.[61] Even if the intent relates to a concept recognized by the halakha, the language of the contract may not be specific enough for a beit din to enforce the contract in accordance with the intent.

 

     A final problem is the perennial one of overlapping jurisdictions. Any time there are overlapping jurisdictions, the judgment is made in a constricted context which can lead to results very far from the expectations of the parties to the dispute.[62] As we pointed out, this is what resulted in the counterintuitive result in the case of the Maharsham. Legally, the injured party collects on behalf of the insurance company, but the relationship between him and the insurer is not in the jurisdiction of the beit din.[63]

 

 

FOOTNOTES:

 

[27] This passage was certainly not meant to recall recent misfortunes of this nature, having been written months beforehand.

[28] Financial derivatives, such as futures, may have both properties. A producer may sell a future to reduce his risk, locking in the current selling price by selling his output on the futures markets; a speculator may sell a future as a risky bet that the price of the commodity will fall.

[29] This situation is more common than would be suspected. Very often, a product will carry a guarantee from the merchant as well as from the manufacturer. Even double insurance is a common problem. For instance, many credit cards automatically provide car insurance on cars rented using the card. If the card holder also pays the rental company, he can be doubly insured - which incidentally may mean that neither insurer will pay.

[30] Our question relates only to the nature of the insurer's obligation, not to its source. In other words, we are asking what the insurer has obligated himself  to do, not by what means he has incurred this obligation. The latter question, which complements the discussion here as well as that in the section on asmakhta, is discussed at length in an impressive, in-depth and comprehensive article on insurance in Jewish law written for Makhon Keter by Rav Udi Fruman, a former student at Har Etzion. Two possibilities mentioned there are that of "hitchayvut" - a unilateral agreement to pay, or a form of bailment, in which the insured object is as it were transmitted to the insurance company for safe-keeping, automatically obligating them to indemnify its loss. The latter approach is highly correlated with the "attribute" view. It would require payment to the owner of the object, as opposed to the payer of premiums, as Rav Fruman points out; it would also require an insurable interest (see next footnote), because only an owner or in certain cases a bailiff is authorized to bail an object. The article, being readied for publication, reached me after the current article was nearing press; Rav Fruman's important contribution to my understanding of the subject of insurance in halakha can unfortunately be reflected only in the footnotes.

[31] The insured needs to have an "insurable interest." It is easy to present the intuitive motivation for this rule. How would you feel if you learned that ten people had taken out fire insurance on your house? What if you discovered that ten people had taken out an insurance policy on your life? Both the insurer and the owner of the insured object want to be sure that there is no party with an interest in the insured object's misfortune. The requirement for an "insurable interest" appears in Responsa as early as the early Acharonim. See Avkat Rochel 174, of Rav Yosef Karo (the Beit Yosef).

[32] Most likely, he will be required to recompense the one who paid the premiums.

[33] Shoel U-meshiv, second edition, III:128.

[34] The case was complicated by the fact that the owner agreed to pay the premiums, but put off doing so. There is a lengthy discussion as to whether his agreement in fact constitutes a binding acquisition, but there is no question that if he did not formally acquire rights to the policy, that the benefits belong to the tenant.

[35] Sekhirut V:6.

[36] II:77.

[37] VI:103.

[38] Shoel U-meshiv, third edition, I:223.

[39] II:211.

[40] 106.

[41] The Pitchei Choshen, Sekhirut 6:44 infers from these responsa that the insurance company actually provided fire protection. This would unravel the puzzle. First of all,  it explains why a tenant would be interested in fire insurance at all. It also explain why the insurance company would offer insurance on such terms: 1) Part of the payment is for a service which can certainly be provided to anybody. 2) The requirement for an insurable interest is partly to make sure that the person has an interest in the well-being of the property; if the insurance company can protect the property itself, this consideration may be less important. 3) This protection effectively gives the entire neighborhood an "insurable interest": since fire spreads from one house to another, one neighbor has an interest is protecting another.

[42] Choshen Mishpat 198:6.

[43] Bava Metzia 46b.

[44] Choshen Mishpat 198:5.

[45] Number 9.

[46] 198:5.

[47] In the "incidental points" section, we bring further evidence that this is indeed the view of the Arukh Ha-shulchan.

[48] Choshen Mishpat 66:9. He refers to the insurance policy as a "shi'abud" or lien on the property, further testifying to the intimate connection between the insurance policy and the insured asset in his view.

[49] From an instrumental point of view, this corresponds roughly to the question of whether the focus of the damage payment is deterrent or compensatory - whether it is made to prevent damages from happening in the first place, or to prevent property owners from suffering loss from damage which occurs. This could also be related to the question about whether damages constitute "Restoration or Compensation", to quote the title of  Chapter 14 of Lomdus by Rav Yitzchak Adler.

[50] Although this position seemingly follows from the view quoted in the name of Pitchei Teshuva and Arukh Ha-shulchan regarding kinyan ma'ot. There, they imply that according to the Rema's view that "fire-proof" merchandise is acquired by mere payment, insured merchandise is acquired this way - meaning, that it is actually fire-proof! If the wheat is burned, then the insurance benefits "restore" the original wheat to the buyer, so that he is not afraid of this eventuality.

[51] Or Sameach, Sekhirut VI:7.

[52] Bava Kama 116.

[53] IV:7.

[54] It follows that according to our classification of a warranty as an attribute of the object, one who causes damage to a warranted object (in a way which did not void the warranty) would not be required to pay for repairs. Intuitively, this seems the correct result. Even though one who borrows an object without payment is liable for even unavoidable damage, one who borrows an object under warranty will obviously be exempt, and the owner will return the object for service.

[55] R. Arieh Leib Horowitz, Harei Besamim, second edition, number 245.

[56] II:50.

[57] Or alternatively, that the insurance company has the right to collect judgments relating to the case.

[58] Minchat Yitzchak III:126.

[59] Although if we took the extreme "object protection" approach, by definition there could be no case of double dipping - since in the case where benefits are paid the object would never be considered damaged.

[60] An extreme example is that of the Mo'adim U-zemanim, VII:269, note 1. After deciding that the halakha can not recognize the concept of legal person, he concludes that money paid for shares of stock are in fact paid for nothing at all. Therefore, the money is to be viewed as a loan - a result very far from the intent of the parties to the stock sale!

[61] Again, an extreme example: the leading halakhic authorities have devoted great effort to resolving the issue of the identity of the legal mother (if any) of a baby born to a surrogate mother. A recent judgment in America resolved this issue very simply, by ruling in accordance with the intent of the parties. It would be hard to imagine a Rabbinical court scholar ruling that Leah is the mother of Reuven merely because that is what she agreed with Rachel.

[62] An extreme example of this phenomenon: benefit of clergy. During the extended period when royal courts coexisted with ecclesiastical courts in England, any clergyman (and practically speaking, anyone who was literate) had the right to be judged in the ecclesiastical court. But many of the crimes adjudicated in the royal courts were not judged at all by the Church, leading to an effective immunity for clergy.

[63] It should be obvious that even to the extent dina de-malkhuta acquires normative status within the halakha, this applies only to specific rules which become binding. There is no sense in which we could view the beit din as being an arm or representative of the secular judiciary. The Israeli Supreme Court seems to have misunderstood this point in a recent decision upholding the right of the beit din to adjudicate all divorce proceedings - in accordance with the instructions of the "higher" court.