1. Insurable interest –in the words of John Birds,

“Insurance interest is a basic requirement of any contract of insurance unless it can be and is lawfully waived. At a general level this means that the party to the insurance contract who is the insured or policy holder must have a particular relationship with the subject matter with the insurance whether that be, “a life or property or a liability to which he might be exposed”
Every of insurance contract requires an insurable interest to support it, otherwise it is invalid. This was held in;
 Anctil Vs Manufacture Life Insurance Co.
 [1899] AC 604.
Insurable interest is essentially the pecuniary or proprietary interest which is at stake or in danger should the insured opt not to take out an insurance policy on the subject matter. It is the interest which the insured stands to loose if the risk attaches. The classical definition of insurance interest was given by Lawrence J in
Lucena Vs Craufourd
 [1806] 2 Bos & PNR 269 at 302.
“ A man is interested in a thing to whom advantage may arise or prejudice happen from the circumstances which may attend it… and whom it imported that its condition as to safety or other quality should continue, interest does not necessarily imply a right to the whole or a part of a thing, nor necessarily and exclusively that which may be subject of privation, but the having some relation to , or concern in the subject 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 prejudice to the person insuring, and where a man is so circumstanced with respect to matters exposed to certain risks or damages, or to have a moral certainty of advantage or benefit but those risks or dangers, he may be said to be interested in the safety of the thing.

To be interested in the preservation of a thing is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction. The property of a thing and the interest is devisable from it may be very different of the first, the price generally the measure but interest in having every benefit or advantage arising out of or depending on such thing may be considered as being comprehended”

This definition was partially adopted by the Marine Insurance Act 1906.  A person is deemed to have an insurance interest in the subject matter if he is likely to suffer prejudice in the event of its loss, damage or destruction. Courts of law have abstracted the following rules as the determinants of insurance interest.
a)    A direct relationship between the insured and the subject matter.
b)    The relationship must have arisen out of a legal or equitable right or interest in the subject matter.
c)    The interest bears any loss or liability arising in the event of loss it risk attaches.
d)     The insured’s right or interest in the subject matter must be capable of pecuniary estimation or quantification.

As a general rule, insurable interest must have a pecuniary value.

Halford Vs Kymer
[1830] 10 B & C 724.
However it need not be permanent or continuous. A right to a future interest or possession is insurable. The insured’s interest must be kept must be real. It therefore follows that a mere expectation of acquiring an interest is not insurable.

Stockdale Vs Dunlop
[1840] 6 M & W 224 OR 151 ER 391

Medieval Common Law did not insist on the presence of insurable interest on the part of the insured. Its requirement as a component of insurance contracts is for the most part statutory e.g. Under Section 4 [1] of the Marine Insurance Act, 1746, insurance interest was made a perquisite of marine insurance. The requirement was extended to life insurance by the Life Assurance Act 1774 whose Section provides that ‘

“No insurance shall be made by any person or persons on the life or lives whatsoever wherein the person or persons for whose use, benefit or on whose account such policy or policies shall be made shall have no insurable interest. [Similar to Section 94[1] Insurance Act.]

The requirement of insurance interest was extended to all categories of insurance by the Gaming Act 1845. Section 5[1] of the Marine Insurance Act and Section 94 [1] of the Insurance Act make insurance interest mandatory in contracts of insurance.

Who has Insurance Interest?

Section 6-20 Marine Insurance Act.
Section 94 [2] of the Insuarcne Act.

  1. Insurance co Ltd Vs Stimson. [1888] 103 US 25, 471. Where a contractor insured the Hotel after the completion but before handing over to the owner and building was subsequently destroyed by fire before the policy lapsed. It was held that the contractor was entitled to indemnity as he had an insurable interest in the building by virtue of the mechanics lien.
  2. In Stockdale Vs Dunlop. The plaintiff had insured the value and the profit of palm oil, he had verbally agreed to buy from a company while two ships were on the high seas and one went missing. His action fro indemnity failed as he had not insurable interest in the oil.

  1. In Macaura Vs Northern Assurance Co [1925]AC 619. The plaintiff had insured the company’s timber in his own name and t was held that he was not entitled to an indemnity as he had no insurable interest in the timber. Appellant who owned a timber estate assigned the whole of the timber to a company known as Irish Canadian Sawmills Company Limited for a consideration of £42,000.  Payment was effected by the allotment to the Appellant of 42,000 shares fully paid up in £1 shares in the company. No other shares were ever issued.  The company proceeded with the cutting of the timber.  In the course of these operations, the Appellant lent the company some £19,000.  Apart from this the company’s debts were minimal.  

The Appellant then insured the timber against fire by policies effected in his own name.  Then the timber was destroyed by fire.  The insurance company refused to pay any indemnity to the appellant on the ground that he had no insurable interest in the timber at the time of effecting the policy. The courts held that it was clear that the Appellant had no insurable interest in the timber and though he owned almost all the shares in the company and the company owed him a good deal of money, nevertheless, neither as creditor or shareholder could he insure the company’s assets.  So he lost the Company.

4. Thomas Vs Continental Creditors [1976] AC 346 it was held inter alia that a creditor has an insurance interest in the life of the debtor to the extend if the debt.

5. In Hebdon Vs West [1863] 3 B& S 579. It was held that an employee has an insurance interest in his employees to the extent of the services rendered and an employee ahs an insurance interest in the life of an employer to the extent of their relationship.

6. In Grifith Vs Fleming [1909] 1 KB 805. [1908-10] ALL ER 760, it was held that a husband has an insurabnle interest imn the life of his wife and vice versa.

7. In Sat Dev Sjarma Vs The home Insurance Co of New York [1966] EA 8 It was wrongly eld that the plaintiff a proprietor of a private school has no insurable interest in the life of the assured who were one of the 3 instructors.

8. Harse vs Pearl Life Assurance Co. [1094] 1 KLR 558. An agent honestly believed that the insured had an insurable interest persuaded him to take a policy in circumstances in which he had no interest but subsequently ascertained the truth and sought to recover the premium. It was held that they were irrecoverable as he had no interest and the parties were in Pari Delicto .” equally to blame..

However in case of active frauds, premiums a[paid are recoverable as were the case in Hughes Vs Liverpool Victoria Legal Friendly Society [1916] 2 KB 482 where the defendant’ agent fraudulently induced the plaintiff to take out an insurance policy in circumstances in which he had no insurance interest.

The English Court of Appeal held the premiums recoverable as the parties were not in pari delicto.

In the words of Bankes L.J. at 496 he stated;

“The authority seem to mean to be all one way, namely that an innocent plaintiff is entitled to say that he is not in pari delicto with the defendant’s whose agent by force and fraudulent misrepresentations induced him to belief that the transaction was an innocent one..

Other case includes.

·         Newbury International Ltd Vs Reliance National [UK] 1994] 1 Lloyds Rep. 83
·         Fuji Finance Incorporation Vs Actir Insurance Co.[ 1997] 1 Ch 173
·         Glengate Vs Norwich union insurance Society [1996] Lloyds Rep. 278
·         Colonial Mutual General Insurance Vs ANZ [1995] 1 WLR 1140

Section 7-15 of the Marine Insurance Act and Section 94 of the Insurance Act identifies circumstances in which persons are deemed to have an insurable interest in the subject matter.

Description of Insurable Interest.

It is generally no necessary for the insured to specify the nature and extent of the interest on the subject matter.

 Section 26[2] Marine insurance Act provides that the nature and extent of the interest of the assured in the subject matter need not be specified in the policy. This position is justified on the premise that the property insurance, the insurer’s principal concern is the amount payable under the policy. However a description of the nature and extent of the interest is necessary where:

  1. The proposal form requires or contains an express stipulation or condition to that effect.
  2. The subject matter of insurance includes prospective profit or consequential loss e.g. insurance of goods in transit.
  3. Precarious losses are involved. These are circumstances in which loss is likely to be greater than expected hence more information is necessary to enable the insurer appreciate the full extent of the risk.

When must insurable interest exist?
It depends on the contract. The insured must at one stage or another exhibit an insurable interest in the subject matter. In indemnity contracts e.g. fire, marine etc Insurable interest must exist when risk attaches.

  1. Section 6[1] Marin Insurance Act provides the assured must be interest in the subject matter at the time of the loss. Though he need not be interested when the insurance is effected [Stockdale Vs Dunlop]

  1. In life insurance the proposer must furnish an insurance interest when the policy is effected. Dalty Vs India And London Assurance Co

  1. With regard to statutory policies, the insured must furnish the insurable interest at the time stipulated by the statute e.g. in compulsory third party Motor Vehicle Insurance, the insured must have an interest when risk attaches.

Role of Insurable Interest.

  1. It establishes a nexus [link] between the insured and the subject matter by demonstrating that the insured stands to loose should the risk attach. This discourages the insured from destroying the subject mater.

  1. It confers upon the insured a right to sue on the policy. Cosforol Union and Others Vs Poor Law and Local Government Officers Mutual Guarantee Association Ltd [1901] 103 LT 463.

3.    This principle has been used by insurers as a profit maximization devise. Sat Dev      Sharma Case, Pearl Life Insurance Case.


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