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Pure risk produces either loss or no loss, never gain, and is the only type insurance addresses. A kitchen fire fits that definition. Buying stock, gambling, and opening a business all carry a chance of GAIN, which makes them speculative and uninsurable.

The DICE test asks that a risk be Definite, Independent (not catastrophic), Calculable, and Economical. Speculative risks are EXCLUDED from insurability because they involve the possibility of gain, which would create a wagering contract.

A pattern of suspicious prior claims signals dishonest tendencies in the applicant, which is the textbook definition of a moral hazard. A physical hazard is a tangible condition; a morale hazard is mere carelessness because coverage exists; 'fundamental peril' is not a hazard classification.

Carelessness or indifference that arises precisely BECAUSE insurance is in place is a morale hazard, sometimes called attitudinal hazard. Moral hazard requires dishonesty; physical hazard requires a tangible condition; 'speculative hazard' is not a real category.

Unilateral means only ONE party (the insurer) is legally bound. The insured can simply stop paying premium without being sued for breach. Bilateral contracts bind both sides; an executed contract is one already fully performed.

An insurance policy is a contract of ADHESION drafted by the insurer. Under longstanding California law, any genuine ambiguity is construed against the drafter — the insurer — to protect the insured who had no chance to negotiate the terms.

Section 331 is one of the toughest rules for applicants: any MATERIAL concealment lets the insurer rescind, regardless of intent. There is no California 'incontestability' period for property and casualty policies; the two-year incontestability rule is a LIFE insurance concept.

California follows the majority rule for property: insurable interest must exist AT THE TIME OF LOSS. (Life insurance is the opposite — interest must exist at policy inception, not at death.) A homeowner who sold the property the day before the fire has no interest at the moment of loss and cannot collect.

Subrogation is the insurer's right, after paying the insured, to 'step into the insured's shoes' and pursue any responsible third party. It enforces the principle of indemnity by preventing the insured from collecting twice — once from the policy and again from the wrongdoer.

Pro rata: each policy pays the share of the loss equal to its limit divided by the total of all applicable limits. Policy A pays 300,000 / 400,000 = 75% of $80,000 = $60,000. Policy B pays the remaining 25% = $20,000. Indemnity still limits total recovery to the actual $80,000 loss.

Admitted (authorized) insurers hold a CDI Certificate of Authority, are rate-regulated, and contribute to the California Insurance Guarantee Association (CIGA), which pays covered claims up to limits if the insurer goes insolvent. Non-admitted (surplus lines) carriers can place coverage only for risks the admitted market won't write, and policyholders get NO CIGA protection.

A mutual insurer is owned by its policyholders; any return of surplus to them is a policyholder dividend, which is NEVER guaranteed. A stock insurer is owned by shareholders and pays shareholder dividends. Both stock and mutual carriers may be admitted in California.

Indemnity means the insured is restored to the SAME financial position as before the loss — not enriched, not impoverished. That is why payments are capped at the actual loss, why subrogation prevents double recovery, and why coinsurance encourages adequate insurance to value.

California Insurance Code §334 defines a MATERIAL fact as one that would influence a prudent insurer in accepting the risk or fixing the premium. A 28-year-old failing roof clearly meets that test. Under §331 the insurer may rescind whether the omission was intentional or merely negligent.