Chapter 4. Insurable Interest in Life Insurance

• Pages: 63-82

CHAPTER 4

INSURABLE INTEREST IN LIFE INSURANCE

4.1 INTRODUCTION

Regional Insurance Acts have modifi ed the rules governing insurable interest in life, representing

an implicit acceptance that intervention is justifi ed in the context of life insurance because of the

overall public policy against the temptation for insurance to serve as an incentive/inducement

to murder. Indeed it is a fundamental requirement of the contract of insurance that the insured

must have an interest in the subject matter being insured. This interest, known as insurable inter-

est, restricts what can be legally insured and distinguishes the contract of insurance from other

commercial contracts. Considered one of the great outstanding principles in the formation of an

insurance contract, the law ‘expressly prohibit[s] ( mala prohibita ) the making of contracts devoid

of insurable interest, rendering them null and void.’

1 Prior to legislative intervention, wagering

contracts where enforceable, it was common for insurance to be e ected where the insured

had no interest in the subject matter of the insurance. A series of eighteenth-century legisla-

tion designed to eradicate ‘mischievous gaming’ was introduced, which today still represents the

foundation for the law of insurable interest in the Commonwealth Caribbean.

2

Although insurable interest is required in both life and indemnity insurance, and while

Lord Justice Waller tenders an elastic approach blurring the demarcation between life insur-

ance and indemnity in Feasey v Sun Life Assurance of Canada , this text adopts for simplicity in

understanding the traditional approach to the capacity and function as the relevant rules di er.

3

This chapter deals with insurable interest in life insurance. Insurable interest with respect to

indemnity insurance will be considered in Chapter 5 .

4.2 INSURABLE INTEREST IN LIFE INSURANCE

The rules governing insurable interest in life policies and policies providing for payment of

fi xed sums in the event of personal injury can be found in modern regional Insurance Acts.

Because these Acts expressly commence with the inclusive statement ‘without restricting the

meaning of the expression “insurable interest ...,”’

4 they operate in conjunction with the resid-

ual Life Assurance Act of 1774 and the common law.

4.3 STATUTE

Prior to legislative intervention, there was no requirement for insurable interest in insurance

contracts. The general principle of every contract was simply that a contract was enforce-

able by the parties irrespective of its subject matter provided it was neither illegal, immoral

1 Per Justice Luckhoo, American Life Insurance v Sumintra (1983) 37 WIR 242, CA.

2 The Marine Insurance Act 1745, 19 Geo. II, c. 37; the Life Assurance Act 1774, 14 Geo. III, c. 48; the

Marine Insurance Act 1788; the Gaming Act 1845, 8 & 9 Vict. c. 109; the Marine Insurance Act 1906, 6

Edw. 7 c. 41; the Marine Insurance (Gambling Policies) Act 1909, 9 Edw. 7 c. 12.

3 In the Court of A ppeal decision of Feasey v Sun Life Assurance of Canada [2003] ECWA Civ 885 [2003]

Lloyd’s Rep IR 637, Lord Justice Waller put forward a fl exible approach essentially blurring the demarca-

tion between life insurance and indemnity. See infra , n. 44 and accompanying text.

4 Cap 310.

64 Insurable interest in life insurance

or contrary to public policy. Three statutes brought about change: the Life Assurance Act of

1774,

5 the Marine Insurance Act of 1906

6 and the Gaming Act of 1845. By virtue of the Life

Assurance Act of 1774,

7 insurable interest is required in contracts of life insurance.

The Life Assurance Act of 1774 applies throughout the Caribbean in the absence of

express statutory exclusion and contains only four sections:

(1) . .. No insurance shall be made by any person or persons, bodies politick or corporate,

on the life or lives of any person or persons, or on any other event or events whatsoever,

wherein the person or persons for whose use, benefi t, or on whose account such a policy or

policies shall have not an interest, or by way of gaming or wagering; and that every such

assurance made contrary to the true intent and meaning hereof shall be null and void.

(2) ... It shall not be lawful to make any policy or policies on the life or lives of any person

or persons, or other event or events, without inserting in such policy or policies the person

or persons name or names interested therein, or for whose use and benefi t or on whose

account such policy is so made or underwrote.

(3) And ... in all cases where the insured hath interest in such life or lives, event or events no

greater sum shall be recovered or received from the insurer or insurers than the amount or

value of the interest of the insured in such life or lives, or other event or events.

(4) ... Provided always, that nothing herein contained shall extend or be construed as to extend

to insurances bona fi de made by any person or persons on ships, goods or merchandises, but

every such insurance shall be valid and e ectual in the law as if this Act had not been made.

4.4 APPLICATION

Either by settlement or statutes expressly incorporating English law as former British colonies,

Caribbean territories all received or adopted the Life Assurance Act of 1774 and the principles

of the English common law. This is refl ected in the judgment delivered by Justice Luckhoo in

American Life Insurance Co. v Sumintra , arising out of the Guyana Court of Appeal.

8 Discussing the

origin, import and nature of the doctrine of insurable interest, Justice Luckhoo states:

Now, it is trite law that one of the three great principles of insurance law is that the insured

must have an insurable interest in the subject matter of insurance, i.e. to e ect a valid contract

of insurance the insured must have something at stake; he must have something to lose by the

happening of the peril he seeks to insure against. T his is a statutory requirement under the

Life Assurance Act, 1774 (UK) a provision which applies in Guyana by virtue of section 13 of

the Civil Law of Guyana Act, Cap 6:01. But, generally speaking, any insurance e ected by an

insured without an insurable interest would be void as gaming or wagering transaction under

section 18 of the Gaming Act 1845 (UK).

4.5 RATIONALE FOR INSURABLE INTEREST

The rational for the requirement of insurable interest can be gleaned from the preamble to

the Life Assurance Act of 1774, which states, ‘Whereas it hath been found by experience that

the making insurances on lives or other events wherein the assured shall have no interest has

5 14 Geo. III, c. 48.

6 Edw. 7 c. 41, which repealed the Marine Insurance Act of 1745, 19 Geo. II, c. 37.

7 14 Geo. 3, c. 48.

8 (1983) 37 WIR 243.