Chapter 4 - Insurable Interest
Timing of insurable interest
'When must insurable interest exist?'- this varies according to the class of insurance business.
Statute
(Acts of parliament) Impose a particular duty on, or grant some benefit to, certain groups of people, thus creating or modifying insurable interest. E.g. Settled Land Act 1925 and the Repair of Benefice Buildings Measure Act 1972.
Liability insurance
A person has insurable interest to the extent of any potential legal liability that they may incur to pay damages. The potential liability and costs are capable of being insured
Property Insurance
Easiest type of insurable interest to identify. Generally arises out of ownership, the insured is the owner of the subject-matter of insurance.
Part or joint owners
Have insurable interest up to the limit of their financial interest. If they are considered a trustee for any money that may be paid in the event of a claim, which may exceed their actual interest, they can insure the property for its full value.
Bailees
Holding property on a temporary basis on behalf of the legal owner. If the property is damaged or stolen they may have to replace it.
Life assurance Act 1774
If at the time of effecting a policy on someone's life, there is no insurable interest on the part of the person effecting the policy, the Act means that the policy is void.
Tenants
In the event of damage to the property, the tenant may be liable for the cost of repairs.
General Insurance
Insurable interest should be present at inception of a general insurance policy.
Insurers' insurable interest
Insurers share risks with other insurers. They are able to do this because they themselves have an insurable interest in the risks that they have assumed. The subject-matter of the contract being the insurer's financial interest in the original insurance.
Dalby v. The India and London Life Assurance Company (1854)
Life assurance act specified that the name of the person effecting the policy had to be shown and they may only recover the value of their interest. However, there need be no valid insurable interest at the time of a claim.
Marine insurance (gambling policies) act 1909
Made it a criminal offence to effect a marine policy where there is no insurable interest or there is no reasonable expectation of such an interest.
Common law
Ownership- if we own something we stand to lose financially if it is lost or damaged. Equally if we cause injury through our negligence, there is a financial aspect to this.
General Insurance policies
Policies that are contracts of indemnity are subject to the rule that the insurable interest must exist at the time of the claim. The claimant has by definition suffered no financial loss if they had no legal financial interest at the time of the claim.
Marine insurance act 1906
Stated that any marine insurance contract was void in the absence of insurable interest at the time of any loss.
Modifying insurable interest
Statutes that restrict liability and therefore restrict insurable interest: Carriage of Goods by Sea Act 1971 limits the liability of a carrier to a specific amount and therefore their insurable interest. Hotel Proprietors' Act 1956, Carriers Act 1830 and Trustee Act 1925.
Features
Subject-matter, legal relationship and financial value
General (Non-marine) insurance Gaming Act 1845
The act extended the requirement for insurable interest beyond life assurance contracts. This act made all contracts of gambling or wagering null or void. General insurance policies taken out where there is no insurable interest is to treat such contracts as a gamble, and therefore of no effect.
Anticipated insurable interest
The expectation of acquiring insurable interest at some time in the future may not be enough to create insurable interest in general non-marine insurances.
Subject-matter of the contract
The financial interest a person has in the subject-matter of insurance.
Financial value
The insurable interest in the subject-matter of insurance must have a financial value. Insurance contracts are always concerned with a financial interest or value.
Subject-matter
The item or event insured- any type of property or any event which may result in a loss of legal right or the creation of a legal liability.
Insurable Interest
The legal right to insure arising out of a financial relationship recognized 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 recognized in law. If there is no legal relationship, there is no insurable interest.
Contract
There are certain situations which we accept greater liabilities than those imposed by common law. These occur when we enter into a contract that gives us greater responsibilities.
Agents
Where a principle has insurable interest, their agent can insure on their behalf.
