NEED FOR AN INSURABLE INTEREST

n  Possibility that the assured is doing no more than wagering with the insurer on the continued safety of the insured subject matter.

n  An insured that stands to benefit from early destruction of what has been insured will be tempted to take steps to bring about such early destruction. 

THE DEFINITION OF INSURABLE INTEREST

n  The root decision is that given by Lawrence J in Lucena v. Craufurd and Others [1806] 2 Bos & Pul (NR) 269

n   the Commissioners of Admiralty had taken possession of a Dutch ship during the Napoleonic Wars and wished to insure it for its voyage home from St Helena to England. The House of Lords was ultimately required to decide whether the Commissioners had sufficient insurable interest to support such a policy

n  "...a man must somehow or other be interested in the preservation of the subject matter exposed to perils...a man is interested in a thing to whom advantage may arise or prejudice may happen from the circumstances which may attend to it...interest does not necessarily imply a right to the whole, or a part of a thing...but the having some relation to or concern in the subject matter of the insurance, which relation or concern by the happening of the perils insured against may be so affected as to produce a damage, detriment or

n  prejudice to the person insuring. And where a man is so circumstanced with respect to matters exposed to certain risks or dangers, as to have a moral certainty of advantage or

n  benefit, but for those risks or dangers he may be said to be interested in the safety of the thing. To be interested in the preservation is to be so circumstanced with respect to it as to have a benefit from its existence, prejudice from its destruction. "

n  It will be appreciated that the formulation of Lawrence J is an extremely wide one.

n  The learned judge carefully distinguished interest from a right of ownership.

n  Suggested that the proper test is that of possible prejudice following loss of the insured subject matter .

n  Lord Eldon indeed appears to have contemplated a much narrower interpretation of insurable interest.

n  “Insurable interest is a right in the property, or a right derivable out of some contract about the property, which in either case may be lost upon some contingency affecting the possession or enjoyment of the property”

n  Lord Eldon's definition seems to restrict the finding of insurable interest to a proprietary relationship between the assured and the property insured or a contract concerning or over that property from which contractual rights are founded.

n  Marine insurance: the narrower approach of Lord Eldon has been adopted.

n  S.5(2) defines insurable interest in terms of:"...any legal or equitable relation to...any insurable property at risk ...in consequence of which [the assured) may benefit by the safety or due arrival of the insurable property, or' may be prejudiced by its loss, or by damage thereto or by the definition thereof or may incur liability in respect thereof"

n  The restrictive approach of Lord Elden was adopted in a number of subsequent cases.

n  Anderson v Morice [1875-1876] 10 CPD 609

n  Macaura v Northern Assurance Co Ltd, and Others [1925 ] AC 619

n   Wilson v. Jones [1867] 2 Exch. 139

n  The return to Lucena

n  The case of Constitution Insurance Co of Canada v Kosmospoulos [1987] 34 DLR 208

n  Anthony John Sharp and Roarer Investments Ltd  v Sphere Drake Insurance Plc et al (Moonacre) [1992] 2 Lloyd’s Rep 501

n  Cepheus Shipping Corporation v. Guardian Royal Exchange Assurance Plc (The Copricorn)[1995]1 Lloyd’s Rep 622

n  Chalmer's Marine Insurance Act 1906

n  The test in arriving at a decision on the existence of insurable interest is that:

n  (a) that there should be a physical object exposed to.. .perils,

n  (b) that the assured should stand in some relationship, recognised by law, to that object, in consequence of which the assured either benefits by its preservation, or is prejudiced by its loss or mishap to it.

n  This appears to be a reassertion of the basic definition of insurable interest by Lawrence J.

n  Remarks:

n  An insurable interest exists if

n  (i) the assured has legal or equitable title to the subject matter; or

n  (ii) if the assured is in possession of the subject matter; or

n  (iii) If the assured is not in possession of the subject matter but may be responsible for any damage to the subject matter.