Insurable Interest

Carriage of Goods by Sea Act 1971

Limits the liability of a carrier to a specific amount, and therefore their insurable interest

An example of a legal relationship

An example is ownership, if there is no legal relationship, there is no insurable interest

Insurer's insurable interest

They reinsure with other insurers (or reinsurers) part or all of a risk that they hold, the subject-matter of the contract being the insurers financial interest in the original insurance

Tenants

When someone is a tenant of a property, they are not the owner of it but have an insurable interest in it

When does insurable interest need to exist for Marine Insurance contracts?

Must exist at the time of a loss, but not need to exist at inception provided that there is a reasonable expectation of interest

When does insurable interest need to exist for General insurance?

Must exist both at inception and at the time of the loss

Ways to create insurable interest

- Common law - Contract - Statute

Marine insurance Act 1906

A codifying Act which stated that any marine insurance contract was void in the absence of insurable interest at the time of any loss

Part of joint owners

A person who is a joint or part owner of certain property has an insurable interest up to the limit of their financial interest

Subject matter of the insurance

Any type of property or event which may result in a loss of legal right or the creation of a legal liability

Property insurance

Generally arises out of ownership, where the insured is the owner of the subject-matter of insurance

The Gaming Act 1845

If a general insurance policy is effect where there is no insurable interest it is void General insurance policies that are contracts of indemnity are subject to the rule that insurable interest must exist at the time of the claim

Examples of where insurable interest arises when the insured is not the full owner of the subject matter

Part of joint owners Agents Bailees Tenants

Statute examples

Settled Land Act 1925 Repair of Benefice Buildings Measure Act 1972

Shareholders

Shareholders in a limited company do not have an insurable interest in the company's property, interest is limited to the value of their shares

Statute

Statutes can impose a particular duty on, or grant some benefit to, certain groups of people, thus creating or modifying insurable interest

What are the feature of insurable interest?

Subject- matter Legal relationship Financial value

Subject matter of the contract

The financial interest a person has in the subject-matter of the insurance, as defined in the case of Castellian v Preston

Financial value

The insurable interest in the subject-matter of insurance must have a financial value

Insurable Interest

The legal right to insure arising out of a financial relationship recognised at law, between the insured and the subject-matter of insurance

Legal relationship

The relationship between the insured and the subject matter of the insurance must be recognised in law.

Contract

There are situations in which we accept greater liabilities than those imposed by common law These occur when we enter into a contract that gives us greater responsibilities The imposition of these responsibilities, or potential liabilities, creates an insurable interest

Life Insurance Act 1774

There must be an insurable interest at inception of a life policy. The act also specified that the name of the person effecting the policy had to be shown and they may only recover the value of their interest There need be no valid insurable interest at the time of a claim

Why is insurable interest a necessary component of insurance policies?

To stop insurance policies being taken out for speculative purposes

Liability Insurance

Under common law, a person has insurable interest to the extent of any potential legal liability that they may incur to pay damages awarded by a court and other costs

Common law

We all owe duties to each other and have certain rights under common law which give rise to insurable interest If we cause someone injury through our negligence, there is a financial aspect to this that gives us an insurable interest

Agents

Where a principal has insurable interest, their agent can insure on their behalf

Bailees

Where someone holds property on a temporary basis on behalf of the legal owner, they are a bailee. They have an insurable interest in the property, since if it is damaged or stolen they may have to replace it

When does insurable interest need to exist for life insurance?

must exist at inception but need not exist at the time of a loss

Examples of bailees

shoe repairers, garage owners and dry cleaners