Insurable Interest
Effect of life assurance without insurable interest:
- shall be null and void to all purposes = s1/2 1774 act - if insurers have paid out in an illegal policy where there has been no insurable interest then the illegality is ignored
Future pecuniary interest
USA - possible: a reasonable expectation of benefit or loss dependent on the duration of a human life UK - not: A mere expectancy or hope of future pecuniary benefit from the prolongation of the life insured or of the fulfilment by him of moral obligations owed to the assured, is insufficient to sustain an insurable interest.
Indemnity Insurable Interest Cases:
- Fehilly v General Accident Fire and Life Assurance Corp ltd. - Cowan v Jeffrey Associates - Macaura v Northern Assurance co.
Life Assurance Act 1774
- s1 of the 1774 attempts to somewhat prohibit no interest
Marine Insurance Act 1906
- s4 1906 act attempts at an insurable interest definition
Timing of Insurable interest
- Dalby v India and London Life Assurance Co - it is necessary for the insured to have an interest ONLY at the time the policy is EFFECTED
EXCEPTION to insuring a child's life:
- Friendly Societies Act 1992 - a parent is able to take out insurance with a friendly society on a child's life without insurable interest. If that child is under the age of 10, however - limited to £800
Insurable interest arising from statutory provisions
- Local Government Act 1972 / Local Government (Scotland) Act 1973 = allows the council the right to insure the lives of members of the council or local authority whilst engaged in council business
Parent and Child
- a parent, however, does not have an insurable interest in their child's life
Harse v Pearl Life Assurance
- adult child - claimed parent's life assurance to pay for funeral expenses - however there was no requirement that funeral expenses needed to be paid for = the council will pay - no legal obligation that the mother keep the house for the son
Fehilly v General Accident Fire and Life Assurance
- care must be taken in identifying the insured's financial interest - FACTS: a tenant had sought to insure its interest in the subjects of a let, a ballroom in Stirling. - The building was destroyed by a fire. Tenants sought to recover from the insurer the value of the building at the time of destruction. FAILED. = on the basis that it did not have an insurable interest in the FULL value of the building. - HELD: in terms of the repair clause in the lease, the tenant was only obliged to maintain the subjects in the condition in which they were when the contract was entered into and not to fully reinstate the building in the event of it being destroyed. - The tenant's insurable interest was limited to the MARKET VALUE of the lease.
Indemnity Insurance
- clear that the insured in indemnity insurance must have an interest as a result of the operation of Scots Law - the rule that the insured must have suffered a FINANCIAL LOSS in order to have a valid claim - insurable interest must exist at the date of the loss, and likely that it must exist when entering the insurance contract
Interest arising out of financial loss
- creditor has an interest in the life of debtor - employer has interest in life of employee
Halford v Kymer
- even if a child is financially supporting an adult then their is no insurable interest
Simcock v Scottish Imperial Insurance
- extent of loss is limited to the value of the employees services during the time of their notice period - is now widely ignored: key employee insurance is often written for more than the value of the notice period.
REFORMING insurable interest in indemnity insurance
- indemnity insurable interest is outdated and in need of reform - whether a requirement of insurable interest is necessary for the definition of an insurance contract
Life Assurance
- insurable interests may arrive from: 1. natural affection 2. interest arising out of financial loss 3. statutory provisions
Natural Affection insurable interest
- insure one's own life - insure partner or civil partner - children have an insurable interest in their parents life as, in Scots law, parents are required to provide aliment (FLsA 1985) - No legal requirement in England or Wales
Feasey v Sun Life Assurance Co.
- leading case on insurable interest - 1. the terms of the policy that the subject of insurance must be obtained - 2. no hard and fast rule - 3. from all surrounding circumstances that nature of an insured's interest is to be decided - 4.
Hebden v West
- limited financial loss insurable interest - A clerk insured his employer's life with two insurance companies for £5,000 and £2,500 respectively. - On the employer's death the first insurer paid out £5,000 - the second refused the claim for £2,500, for lack of insurable interest. - The clerk had a 7 year fixed term contract of employment at an annual salary of £600. His employer had also lent him £4,700, promising him that he need not repay it while his employer was alive. - The court, however, found that only the employment was an interest recognised at law. - The promise not to demand the loan was a mere forbearance and not a legally binding promise. -As the employee had already recovered to the full extent of his interest in the employment under the first policy (valued at £600 x 7 years), the second policy was void for lack of insurable interest.
Consequences of Dalby
- mischievous consequences - where an insured assigns a policy on his own life to a party with no interest - eg. Creditors may insure their debtor's lives for the amount of the debts owed. The debt may be paid shortly after but the insurance will still remain. = is this not wagering? - once the insured ceases to have an interest in the life of the insured, the insured should have the option of taking over the benefit for themseleves
Complex
- no attempt to define insurable interest in statutes - this is left for case law and the courts to decide
Godsall v Boldero
- once accepted that in indemnity insurance, the insurable interest MUST exist at the time of the loss.
REFORMING insurable interest in life insurance
- strict law on life insurance interest is out of touch with reality? - cohabitants - people dependent on their parents/guardians and parents dependent on their children - non-family insurable interest - consent of the life insured should be enough = broaden the definition in life insurance
Dalby v India and Sun Life Assurance
- timing of insurable interest - overruled Godsall v Boldero - FACTS: reinsurance case - in life assurance the requirement is that insurable interest must exist at the time the contract of insurance is made, and NEED NOT continue to exist until the time of the loss.
pecuniary interest
- to satisfy financial loss insurable interest, one must prove their is a loss that can be valuated. - s3 1774 act
Cowan v Jeffrey Associates
FACTS: Mr Cowan, the director and sole shareholder of a company had signed personal guarantees covering the company's indebtedness and was owed a substantial amount of money by the company through a loan for work which he had carried out on the company's behalf. - The company owned the business premises. He decided to purchase those premises from the company (in his own name) - He insured the premises against fire. - when he entered the contract, Mr Cowan was merely a prospective buyer - although he had no contractual or other right in the premises, he did have a great deal to lose should the premises be destroyed. - when the premises were destroyed, he claimed under the insurance policy. HOWEVER, the insurers refused to meet his claim. HELD: following preceding cases, the judge found Mr Cowan had no insurable interest. Canadian test = moral certainty of profit or loss
Macaura v Northern Assurance Co.
FACTS: a company owned timber. Macaura, the unsecured creditor and sole shareholder, took out an insurance policy over the timber in his own name. - Fire destroyed the timber. - HELD: as an individual he did not own the timber so did not have an insurable interest - neither a shareholder nor creditor has any insurable interest in any particular asset belonging to company - it was the company that suffered the loss. therefore cannot insure over asset they do not own - no insurable interest. " the insured stood in no legal or equitable relation to the timber at all."
