Reforming The English Law On Insurable Interest

5955 words - 24 pages


The law on insurance in the UK has not been updated for quite long and the call for reform is catching pace by every passing day. The issues to be raised in this research are the areas where reform is needed, the reason there is this need and what would be achieved by the reform. This research will however be confined to one major area where reform is required, namely, the insurable interest. This area might seem to be minimal but there are many issues within this area which needs to be clarified and reformed. This area affects the daily lives of a common person in the UK and it has been the courts and to some extent the insurers themselves who are giving them remedies. This ...view middle of the document...

The purposes of insurable interest can be identified as follows:
► Prevention of Gambling: Any insurance contract without insurable interest is a gambling contract and these cannot be legally enforced.
► Reducing intentional losses: It is a common belief that the requirement of insurable interest reduces intentional losses resulting from moral hazards.
► Enforcing the principle of indemnity: This principle states that a person should not profit from an insured loss. A contract of indemnity provides payment of a sum equivalent to the loss and therefore if a person has not suffered any loss the insurer has no duty to indemnify against that loss.

Before the enactment of the Marine Insurance Act 1745, English law acknowledged the European doctrine that the marine insurance contract required an insured to have an interest in the subject matter to have a contract of indemnity. During the 17th century insurers started issuing policies which did not require any insurable interest by including the words “interest or no interest”. Therefore it clearly suggested that parties were not interested in the interest but were rather wagering under the cover of insurance policies.
The first time the courts criticised these policies directly was in the case of Goddard v Garrett . However, the courts were not fully hostile towards these policies as these were beneficial to merchants and traders and they sometimes even turned a blind eye towards it. In the 18th century the courts not only approved these policies but also redefined the concept of wagering to accommodate the wagering character of these policies .

With the enactment of the Marine Insurance Act 1745 the Parliament prohibited the ‘interest or no interest policies’. It made all these policies null and void . The purpose was not only to prevent gambling but the adverse effect wagering had on the overall trade in the country. The most common mischief was that of fraudulent claims and deliberate losses which put lives and property at risk which was in turn loss for the underwriters.

However, not all was good as wagering policies were allowed for foreign ships and cargo for the reason that bringing witnesses from abroad was difficult . There were a few other exceptions in Sections 2 and 3 of the Act but are out of the ambit of this discussion.

In Lucena v Craufurd Lord Eldon and Lawrence J established that the ownership of the property was not the only source of interest but there had to be sufficient certainty of benefit from the safety of the property (factual expectation of benefit from the continued existence of property ).

During the 19th Century the courts usually referred to Lord Eldon’s rules in cases where insurable interest was an issue. It was also further refined to include situations where the assured was liable to bear the cost of loss and damage to insured property. The court decided many cases where they clarified the issues and...

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