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What is Insurance?

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Barry Zalma, Esq., CFE

Insurance claims expert, consultant at Barry Zalma, Inc. and author/Publisher at ClaimSchool, Inc. 

 September 4, 2023 

INSURANCE IS

Insurance is a contractual relationship between an insurer and a person described as the insured or assured.

California has, by statute, created one of the clearest definitions of insurance. The California Insurance Code states:

"Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event."[California Insurance Code § 22]

The California Legislature, by Insurance Code Section 22, merely codified three centuries of common law defining insurance. This definition applies in most states. Whether codified, or only part of the state’s common law, there can only be insurance if there is an agreement by one to indemnify against a contingent or unknown event.

To function properly the parties to the contract of insurance must deal fairly and in good faith with each other because to do otherwise, to act unethically, will make it impossible to properly analyze the risks one party – the insurer – is asked to take for the other – the insured. Both parties to a policy of insurance must be confident that the other is dealing ethically and with the utmost good faith or the entire system will collapse…

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