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