Suppose you desire to place your prized collection of bibelots into storage. The storage company offers to assume the risk of loss for an additional monthly payment. Have you entered into:
- a bet;
- an indemnity contract; or
- an insurance contract?
The characterization of the transaction, of course, can have legal consequences. In Heckart v. A-1 Self Storage, Inc., 2018 Cal. LEXIS 2762, the California Supreme Court held a self-storage company's monthly fee for assuming the risk of loss up to a specified maximum was not insurance within the meaning of Section 22 of the California Insurance Code ("Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.") The Court found that the Insurance Code's definition "has long been understood not to reach indemnification agreements between parties to a transaction if the indemnification agreement is incidental to the principal object and purpose of the parties' transaction . . .".
Having briefly summarized the Supreme Court's conclusion, it must be noted that the Court did not reach its conclusion so succinctly. The opinion provides an exegesis on the principal object and purpose test under prior case-law. This is not surprising because a bet, an indemnity agreement, and insurance each fundamentally involve the payment of money and risk.