Property and Casualty Insurance Practice Exam

Which type of contract is contingent on an uncertain event?

1. Unilateral contract

2. Aleatory contract

3. Contract of adhesion

4. Absolute liability contract

The correct answer is: Aleatory contract

An aleatory contract is one in which the performance of one or both parties is contingent on an uncertain event. This type of contract often involves an element of chance or risk and is typically characterized by the unequal exchange of value between the parties. In the context of insurance, the insurer promises to pay a benefit upon the occurrence of a specified event, like a claim, which may or may not happen. This uncertainty creates a situation where one party may receive a benefit far greater than the amount paid, reflecting the classic aleatory nature. In contrast, a unilateral contract involves a promise made by one party in exchange for the act of another party, but it does not inherently rely on an uncertain event as a condition for the contract's existence. A contract of adhesion generally refers to a contract that is drafted by one party, with the other party having little or no negotiation power, and while it may include contingencies, it does not specifically emphasize the uncertainty inherent to an aleatory contract. An absolute liability contract is one where liability is imposed without regard to fault, typically in contexts such as environmental or product liability, but it does not relate to the condition of uncertainty that defines an aleatory contract.