Chapter 5. Insurable Interest in Property Insurance

• Pages: 83-106

CHAPTER 5

INSURABLE INTEREST IN PROPERTY INSURANCE

5.1 INTRODUCTION

We established in the previous chapter that insurable interest is a fundamental requirement

of insurance law. T he insured must be in the position susceptible to su ering economic loss as

the proximate result of damage to or destruction of property. Regional jurisprudence indicates

respect for Commonwealth decisions on insurable interest relating to indemnity insurance. In

this regard, S ookdeo & Sookdeo’s Motor Supplies Ltd v Trinidad & Tobago Insurance Ltd , 1 Advantage Gen-

eral Insurance Co. Ltd v Myrie 2 and Rambally v Barbados Fire & General Insurance Co. Ltd et al . 3 stand

out. They suggest support for this broad approach is the dominant position in the context of

modern commerce. This enables an undisclosed principal to benefi t from the existence of an

insurance contract with property insurance. Historically, guiding principles were extrapolated

from the Gaming Act of 1845,

4 Marine Insurance Act of 1906

5 and the relevant common law

which constitute the current position.

At common law, the conventional test for insurable interest is the insured’s possession of

some legal, equitable or contractual interest in the subject matter of the policy. Additionally,

the broader factual expectancy test operates (i.e. ‘to be interested in the preservation of a thing,

is to be so circumscribed with respect to it as to have benefi t from its existence, and prejudice

from its destruction.’

6

5.2 ACADEMIC CRITICISM

Before exploring the legal position on insurable interest relating to property, it is important to

observe academic criticism of the ter m ‘insurable interest.’ It is argued that the term insurable

interest is manifestly a misnomer, the proper term being ‘insurable relationship,’ that factual

expectation of damage should be the exclusive test of an insurable relationship.

To those who cling to strict property delineations in fear of the process of drawing the line

between a genuine factual expectation of damage and wager, it can be said not only that judicial

wisdom is equal to the task, but that a just line drawn with di culty exceeds in value a simple

line which works disproportionate injustice.

7

1 The plainti s held a policy of fi re insurance with the defendant. The policy covered losses under three heads.

After investigations were conducted, the defendant paid the plainti s the following sums: $1,804,350.34 on

the building loss; $18,000 on loss of air conditioning units; and an interim payment of $191,734 on loss of

stock.

2 JM 2012 SC 10.

3 Unreported decision, High Court of St Lucia No. 1179 of 2000.

4 8 & 9 Vict. c. 109.

5 Edw 7. c. 41.

6 Lucena v Craufurd (1806) 2 Bros & Pul (NR) 269 per Lawrence J at 302. See infra , n. 36 and accompanying

text. In Lucena v Craufurd , the surrounding legislation provided that Crown Commissioners could take pos-

session and manage the a airs of ships owned by Dutch Nationals but only when such ships were brought

into British port. England and France were at war. Holland was neutral but under threat from France. The

ships were captured and brought into British port, but losses were incurred before the vessels reached the

port. The Court held that the Commissioners had no insurable interest in these vessels.

7 B. Harnett and J. V. Thompson, ‘Insurable Interest In Property: a Socio-Economic Re-evaluation of A

Legal Concept’ (1948) 48 Colum. L. Rev . 1162; A. Tarr, ‘Insurable Interest’ (1986) 60 Aust. L.J . 613.

84 Insurable interest in property insurance

Despite the acknowledged limitations of the ter m ‘insurable interest,’

8 the conventional

approach has a constancy of meaning which makes it convenient for the purposes of this text.

9

5.3 HISTORICAL DEVELOPMENT

The Marine Insurance Act of 1745,

10 Life Assurance Act of 1774,

11 Gaming Act of 1845,

12

Marine Insurance Act of 1906

13 and the Marine Insurance (Gambling Policies) Act of 1909

14

were all collectively designed to stamp out mischievous gaming with respect to indemnity insur-

ance. Section 1 of the Marine Insurance Act of 1745 fi rst introduces ‘insurable interest’ as a

requirement with respect to all British ships and their cargoes; absence of insurable interest

renderd the contract null and void. The explanation for the statutory intervention is evident

from the preamble to the Act, which provided:

15 ‘the institution and laudable design of making

assurances, hath been perverted; and that which was intended for the encouragement of trade

and navigation, has in many instances, become hurtful of, and destructive to the same.’ The

1745 Act was eventually repealed by the Marine Insurance Act of 1906.

16

5.4 STATUTORY POSITION IN THE

COMMONWEALTHCARIBBEAN

To ascertain the rules governing insurable interest in indemnity insurance, attention must be

paid to statute, primarily the Marine Insurance Act of 1906,

17 evident in Sections 8 and 9 of the

Barbados Marine Insurance Act

18 which, despite its title applies to all contracts of indemnity.

19

The Marine Insurance Act assists in defi ning insurable interest and the issue of timing, but

the di erence between insurable interest in life insurance and insurable interest in property is

immediately apparent. In life insurance, insurable interest is required at the point of e ecting

the contract. In contrast, in property insurance, insurable interest is not necessary at the time of

e ecting the contract but must exist at the time of loss. Moreover, within indemnity insurance

a distinction emerges between marine and non-marine insurance. On the authority of Grover

& Grover Ltd v Matthews , 20 ratifi cation is only e ective in non-marine insurance if it takes place

8 As observed in Constitution Insurance Co. of Canada v Kosmopoulos (1987) 34 DLR (4th) 208:

how does one own a direct interest in property which is not in existence at the time of the con-

tract? Can next season’s crops or fl uctuating inventory be insured? Are warehousing and other

bailee policies subject to the law as set out in Macaura so as to limit the right to insure to the

bailee’s liability to the bailor?

9 Supra n. 7.

10 19 Geo. II, c. 37.

11 14 Geo. III, c. 48.

12 Supra n. 4.

13 6 Edw. 7 c. 41.

14 9 Edw. 7 c. 12. Section 1(1) provides that a person e ecting marine insurance without interest shall be guilty

of an o ence and shall be liable, on summary conviction, to imprisonment.

15 Supra n. 13.

16 Ibid.

17 9 Edw. 7 c. 12. Section 4 of the Marine Insurance Act of 1906. This Act replaced the two former Marine

Insurance Acts of 1745 and 1788.

18 Cap 242.

19 This is evident, for instance, construing the Act as a whole, in Section 10 of the Barbados Marine Insurance

Act, Cap 242, which expressly governs insurable interest on goods.

20 [1910] 2 KB 401.