Insurable Interest Notes

What is an Insurable Interest?

The insurer/underwriter agrees to insure the insured in respect of their insurable interest in the subject-matter insured against the particular risk being insured.

Components: There are three components of an insurance deal...

1. Insurable interest of the insured – this has a pecuniary value.

2. SM of the insurance – the actually thing or object insured.

3. Risks being insured against – the events or dangers that may occur.

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Insurable Interest

What? The interest the insured has in the SM. The character of the interest will depend on the SM; i.e. land, life insurance etc.

Interpretations of ‘insurable interest’:

• Lucena v. Crawford; Two interpretations of an insurable interest, which in this case was the prize money for returning a ship.

1. Lawrence J: Wide concept. Argued an insurable interest is based on an expectation entitlement, not a legal entitlement. Here he said that the master’s expectation to the prize money is what was insured, not the actual ship captured.

2. Lord Eldon: Narrow legal concept. Argued at law nobody can be interested in property (here a ship) unless they have a legal or equitable right to it. This is a more formalistic approach.

= In Stock v. Inglis the judges stated that courts should lean towards finding an insurable interest where they can because the concept is not meritorious. In principle it is not right for UWs to accept premiums and then reject liability.

Rationale: The concept of an insurable interest is the key difference between insurance and gambling, which was formerly outlawed. Having an insurable interest is still necessary for all insurance types, except defined benefit insurance.

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Valued Insurance Policy aka ‘Agreed Value’

What? When an insured enters into the insurance contract it fixes a particular value for its insurable interest in the SM insured; i.e. the extent of any loss suffered by the insured has a notional value which has already been agreed to by the insurer.

Example: I own an antique vase. Although it is only worth 200, the insured fixes the agreed value at 5000. If the vase is destroyed the insured will be paid 5000. This is justifiable because the insured paid a higher premium for the insurance policy. Therefore the concept of indemnity (not being overcompensated for your loss) has not been breached.

• S.27(2) MIA: ‘A valued policy is one which specifies the agreed value of the SM insured’.

• S.27(3) MIA: Value fixed is conclusive for the total or partial loss.

• S.27(4) MIA: Does not apply to constructive total losses. See later.

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Unvalued Policy

What? Insurers agree to insure the value of the goods, whatever that value is. Even if there is a limit on the sum insured, it will be an unvalued policy subject to a cap. The value of the interest will be calculated at the time the insured suffers loss.

• S.28 MIA: ‘A policy which does not specify the value of the SM insured but, subject to the limit of the sum insured, leaves the insurable value to be subsequently ascertained’.

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Rules on Insurable Interests for Different SMs

1) Life Insurance / Personal Injury – Although death is certain, the uncertainty is when it will happen. This is a defined benefit policy. This means it is not the value of the insured’s...

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