Legal Purpose
A contract requirement: the agreement must not violate law or public policy. A contract to insure against an illegal activity is void.
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Practice This Concept
For a health insurance contract to be valid, the parties must have legal capacity and the contract must have a legal purpose. Which statement correctly applies this requirement?
The contract must be formed by competent parties pursuing a lawful objective, such as transferring legitimate risk — Every valid contract requires competent parties and a legal purpose. The parties must have legal capacity to contract, and the objective must be lawful — insurance to transfer legitimate risk qualifies. A contract whose purpose is a wager on another's health is illegal and unenforceable. Capacity and legality are judged when the contract is formed; paying a premium does not cure a defect.
National insurance concept
A contract of insurance that covers the insured's planned criminal activity would fail which essential element of a valid contract?
Legal purpose — Every valid contract must have a legal purpose — an objective the law permits. A policy that would indemnify losses from planned criminal conduct encourages wrongdoing and violates public policy, so the contract lacks legal purpose and is unenforceable. Agreement, consideration, and capacity may all be present, but an illegal objective voids the contract.
National insurance concept
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