Insurable Interest

1) Life Assurance Act 1774 - Types of Interest Statutory Interest

*Civil Partnership Act 2004 - S253* Civil partners have an unlimited interest in each other and this is protected by statute

1) Life Assurance Act 1774 - When must the interest exist?

*Dalby v India and London Life Assurance* You only have to establish the interest at *inception* - so when you take the policy out facts: the claimant was the director of a company which had insured the life of the Duke of Cambridge, and which reinsured the risk with the defendant. The original policies were cancelled but the claimant kept paying the premiums on the reinsurance policy until the Duke died. The defendant then denied liability on the ground that the claimant had not interest in the Duke's life at the date of his death, having himself nothing to pay out on it. The Exchequer Chamber found for the claimant, holding that S.3 of the 1774 Act applied only to require *the insured to value his interest at the date off effecting the policy*

4) Goods Case

*Macaura v Northern Assurance* facts: the case involved the sole shareholder of a limited company who insured, in his own name, timber owned by the company. A fire occurred and it was held that there was no insurable interest because there was no 'legal or equitable relation' to the timber. *In applying the indemnity principle, the fact that he is not the company, who owns the timber, means that there is no insurable interest.* The fact that the claimant was the majority shareholder had no effect, because the property did not belong to him, it belonged to the company

Contingency Insurance

*Pays out a specified sum on the happening of the contingent event.* For example; life insurance, critical illness insurance, personal accident insurance You set the amount upon taking out the insurance

Indemnity Insurance

*Pays out the amount of the loss assessed once that loss has occurred.* For example; household or motor insurance A classic example is personal property: you only get paid the value of items that have been stolen from your house in household income

3) Real Property - conflicting cases

*Re King* and *Mark Rowlands Ltd v Berni Inns* The former says the Act applies to real property but the latter says it does not. However, the statements were obiter so we do not know. *Sadler's Co v Badcock:* Even if the Act does not apply, there is still a common law requirement for a legal or equitable interest before you take out the real property insurance

4) Goods Case - legal personality of companies

*Salomon v Salomon* Established that companies are a *separate legal personality.* In company law, a creditor cannot find against shareholders for debts personally. Therefore, if you have the benefit of the *corporate veil* (the fact the companies are separate), you cannot look beyond this to make a gain.

Feasy v Sun Life Waller's 4 Categories - 4 *Case*

*The Moonacre* Ruled that the insured, Mr Sharp, had an insurable interest in the boat (the subject of the insurance). The boat was owned by a company which was 100% owned by Mr Sharp, but it was the *two powers of attorney* granted by the company to Mr Sharp giving him wide authority to enjoy and use the vessel exclusively for his own purposes that provided the insurable interest

1) Life Assurance Act 1774 - Types of Interest Presumed Interest

*Wainwright v Bland* - own life *unlimited* interest in your own life - so you can insure it up to any amount you want *Griffiths v Fleming* - life of a spouse *unlimited* interest in the life of your spouse - so you can insure it up to any amount you want also This presumption probably extends to a fiancé insuring the life of his or her fiancé(e). This was the view of an Insurance Ombudsman who suggested that the presumption should also apply to an unmarried couple living together. Application: If someone has a family and they are the sole breadwinner, they may want to take out an insurance policy on their life so that there is a fund to support the family if they die, or one might want to protect their estate by taking out a policy - putting their money into a trust *so the insured must show that he would suffer financially by the loss of a legal right on the death of the life insured*

Feasy v Sun Life Waller's 4 Categories - 3 *Case*

*Wilson v Jones* The plaintiff was a shareholder in Atlantic Telegraph Co. He insured himself with the defendant under a form of marine policy in common form by filled up with marginal additions. *The court held that although the policy looks like one on the cable, it is actually on the interest of the whole adventure.*

What does the 1774 Act *not* explain?

*nature* of the interest that is required *when* it must exist the *extent* of it or what types of insurance the Act is applicable to

Rules based on types of insurance

1) Life Assurance Act 1774 2) Marine Insurance Act 1906 3) Real Property 4) Goods

1) Life Assurance Act 1774 - Types of Interest

1. *Presumed* - recognised in case law e.g. your own life / spouses life 2. *Statutory* - Civil Partnership Act 3. *Potential Financial Loss* - lenders may insure the life of another

2 Approaches to Insurable Interest

1. Traditional Approach - rules based on type of insurance (discuss this first) 2. Feasey v Sun Life - 4 new categories by Waller LJ

1) Traditional Approach: Life Assurance Act 1774

Applies to life insurance and other contingency insurance such as personal accident and critical illness. Only 4 sections: S1 - Interest required to exist - a policy without interest is void (and illegal - Harse v Pearl Life) S2 - Name of interested person to be inserted into policy - to show a genuine interest (otherwise void, but not illegal) S3 - Any recovery under policy is limited to the amount of the interest - you cannot have an unlimited interest S4 - Does not apply to 'ships, goods and merchandises'

3) Real Property

Conflicting data as to whether the Life Assurance Act 1774 should apply

1) Life Assurance Act 1774 - Types of Interest Potential Financial Loss

Creditor insuring the life of the debtor to the amount of the debt - *The amount of interest is limited to the pecuniary interest of the insured* *key person insurance* - where someone is vital to a company or a the judge of a £million case, a policy may be taken out on their life due to such a financial interest

Feasy v Sun Life Waller's 4 Categories - 4 *What did it include?*

Included life and marine policies which the traditional approach does not usually mix Even in the case of property, something *less than a legal or equitable or simply pecuniary interest* has been thought to be sufficient Perhaps this could be used in the case of *life insurance* where this is no recognised interest stemming from a financial loss - e.g. parent-child - but there is still a non-pecuniary interest in the life

2) Consequence of taking out a marine policy without interest

It is a *criminal offence* to take out a marine policy without interest Marine Insurance (Gambling Policies) Act 1909 - *void, illegal and subject to forfeiture*

4) Goods

No statutory requirement of interest. *The principle of indemnity should ensure that the interest exists at the time of the claim* You are only entitled to the *measure of your loss*

Feasy v Sun Life Waller's 4 Categories - 4

Policies in which the court has recognised interests which are *not strictly pecuniary* [90]

2) Marine Insurance Act 1906 - S5

S5(1) - Every person has an insurable interest who is interested in a *'marine adventure'* S5(2) - A person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof *So, you must establish equitable or legal interest and show that if anything happened to the property, you suffered prejudice from that loss* A clear example was if you could establish ownership.

2) Marine Insurance Act 1906 - S4

Strictly does not apply to other types of insurance S4 - Every contract of marine insurance by way of gaming or wagering is void. 'gaming or wagering' contract = one where the assured has to insurable interest as defined by this act

2) Marine Insurance Act 1906 - S6

The assured must be interested in the subject matter insured *at the time of the loss* though he need not be interested *when the insurance is effected*

What happens in the absence of an insurable interest?

The contract will be rendered: *void*; or *illegal*; or *simply unenforceable*; or *prevent a claim under it* It depends on the type of insurance!

What is insurable interest?

The party to an insurance contract who is the *insured or policy holder* must have a particular *relationship with the subject matter* of the insurance... Whether that is life, or property or a liability to which he might be exposed

S2: Life Assurance Act 1774

This requires the name of the person who is to benefit from the policy to be inserted into it in order to show a genuine interest. *Evans v Bignold: The section is only applicable where the direct purpose of effecting the policy is to confer an immediate benefit on another* It does *not* apply where A takes out a policy on their own life and B will subsequently be assigned a secondary benefit as a result

Feasy v Sun Life Waller's 4 Categories - 3

Where even though the subject matter may *appear to be a particular item of property, properly construed, the policy extends beyond the item and embraces such insurable interest as the insured has* [87]

Feasy v Sun Life Waller's 4 Categories - 2

Where the court has defined the subject matter as *a particular life of a particular person*; and where the insurance is to recover *a sum on the death of that person* In these cases, the court had recognised an insurable interest in that life where a *pecuniary loss flowing from a legal obligation* will or might be suffered on the death of that particular person [82]

Feasy v Sun Life Waller's 4 Categories - 1

Where the court has defined the subject matter as *an item of property*; where the insurance is to *recover the value* of that property; and where thus there must be an interest in the property - real or equitable - for the insured to *suffer loss* which he can recover under the policy [81] In *Macaura*, the subject matter was timber owned by the company. A shareholder in the company was found to have no interest and so Feasy was of no help