You might know that sweepstakes prizes worth millions of dollars are actually paid by insurance companies, not the company that is promoting it. But you might not know why insurance companies would agree to such huge potential payoffs - policy premiums!
Insurance companies receive policy premiums from the company in exchange for taking on the risk of a huge payoff. A recent example is an alleged agreement between Yahoo! & an insurance company to pay $1 billion to anyone who submits a perfect NCAA March Madness bracket through the Yahoo! Sports website.
The insurance company alleges that Yahoo! breached by cancelling the agreement after paying only one installment of the policy premiums. If the insurance company's allegations are true, in order to cancel the agreement Yahoo! has to pay 1/2 of the agreed-upon policy premiums. Yahoo! claims that the contract allows them to cancel at any time without paying any additional premiums.
A basic tenet of contract law is that a contract is formed upon the congruence of all of the required elements of a contract: offer, acceptance, and consideration. Even if the "triggering event" (in this case the results of the basketball tournament) occurs in the future, an enforceable contract results when all three parts exist together.
This case will come down to the language of the contract itself, but I find more value in the example of a difference between a contract with duties that result upon the happening of a subsequent event (this one) and a contract with a condition precedent (I agree to pay you $10.00 if and only if the Atlanta Braves win the 2014 World Series). Contracts with conditions precedent are not breached until the triggering event occurs. The alleged contract in this case was allegedly breached by the unilateral termination by Yahoo! (I agree to pay policy premiums to you in exchange for your promise to cover me if someone submits a perfect NCAA bracket).
In order to profit from these agreements, insurance companies almost always phrase the agreement to form an enforceable agreement immediately without conditions precedent.
The distinction is a fine one; make sure to have an attorney draft contracts on your behalf.
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