Insurance Law Project
On
Insurable Interest
Submitted to:
Ms. Apoorvi Srivastava
Faculty of Insurance Law
Submitted by:
Swapnil Rathore
Roll no. 160
Semester VIII, Section B
B.A. LLB (Hons.)
Submitted on:
April 06, 2017
HIDAYATULLAH NATIONAL LAW UNIVERSITY
Uparwara Post, Abhanpur, New Raipur (C.G.) – 492002
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Contents
Objectives……………………………………………………………...3
Research Methodology…………………………..………………….…4
Certificate of Declaration…………………………..….………………5
Introduction………………………………………….………………...6
What is Insurable Interest……………………………………………...8
Nature of Insurable Interest……………………………………………10
Wager and Insurance………………………………………………….12
Time or duration of Insurable Interest………………………………..13
Insurable Interest and Life Insurance Contracts………………………14
Insurable Interest and Fire Insurance…………………………………17
Insurable Interest and Marine Insurance………………………………19
Conclusion……………………………………………………………..21
References……………………………………………………………...22
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Objectives
To understand the meaning and importance of Insurable Interest in
Insurance Law.
To understand the types of Insurable Interest.
To discuss the role of Insurable Interest in life, fire and marine
insurance.
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Research Methodology
The current work focuses on “Insurable Interest”, the method adopted for this work was
analytical in nature based on empirical and non-empirical resources.
Legal provisions(substantive and procedural laws), books, reports, journals and other references
as guided by Faculty have been primarily helpful in giving this work a firm structure. Websites,
Dictionaries and web articles have also been referred.
Footnotes have been provided wherever needed, either to acknowledge the source or to point to a
particular provision of law. Uniform Bluebook (19th edition) citation format has been followed
for footnoting.
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Certificate of Declaration
This is to certify that Mr. Swapnil Rathore, Roll Number 160, student of Semester VIII, Section
B of B.A.LL.B.(Hons.), Hidayatullah National Law University, New Raipur (Chhattisgarh) has
undergone research of the project work titled “Insurable Interest”, in partial fulfillment of the
subject of Insurance Law. His performance in research work is up to the level.
Place: New Raipur ………………………… ……………………………
Date: 06.04.2017 Ms. Apoorvi Srivastava
(Faculty- Insurance Law)
Hidayatullah National Law University, New Raipur, Chhattisgarh
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Introduction
Risk and uncertainty are incidental to life. Man may meet untimely death. He may suffer from
accident, destruction of property, fire, floods, earthquakes and other natural calamities.
Whenever there is uncertainty, there is risk as well as insecurity. People always want to avoid the
financial consequences of these risks e.g. replacing personal property that is lost or damaged.
Insurance exists because risk exists. Insurance cannot remove the risk or the likelihood that one
might become a victim of risks, but it ensures the transfer of all or some of the financial impact.
For the contract of insurance to be valid it is not only necessary that the parties to the contract are
competent to contract, it is made with free consent and the consideration is lawful, beside all this
it is also necessary that the insured has insurable interest on the subject matter of the insurance. If
there will be no insurable interest then contract will amount to wager. Insurable interest in broad
term means that the party to the insurance contract who is insured or policyholder must have a
particular relationship with subject matter of the insurance, whether that be a life or property.
The concept of insurable interest is of particular importance in marine and life insurance.
Everyday newspaper, television and other means of communication brings reports of death of
number of peoples, naturally or by accident or otherwise. One does not shed a tear at this unless
ones near relative or breadwinner or benefactor or friend are among the dead, because one has no
interest in their continued existence or death. In other words he has no risk of loss in the death of
the person or any motive to support that person's life.
If so why should he have a right to insure that life and get a chance to recover on the termination
of that life a disproportionately bigger sum than what he gives? On the other hand it may even
tempt him to bring about the destruction of that life and thereby make an unlawful gain. It is
against public policy to allow such things to happen and with this motive there is something
in insurance contract called as insurance interest But there is however no danger to public
welfare if a person is allowed to insure the life of a person whose preservation is to his advantage
and whose death puts him to risk of genuine loss.
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Insurable interest is thus a financial or other lawful interest in the preservation of the life to be
insured .also we know that nobody can burn his car or home to claim the insurance money
for insurance company.
The aim of insurance is to shift risk from one person (the insured) to another (the insurers). As
we all know that insurance contracts are subject to the general law of contract, but special rules
also apply to them which do not apply to most other contracts for instance both parties are under
the duty of disclosure in relation to some policies (utmost good faith, insurable interest etc).
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What is Insurable Interest?
Insurable Interest means an interest which can be or is protected by contract of insurance. Thus it
is very clear that a contract of insurance is a contract of indemnity, based on the principles of
‘uberrima fides’ and insurable interest. All insurance contracts, except life insurance are
contracts of indemnity. Insurable interest means an interest which can be or is protected by a
contract of insurance.1 It is a relation between the insured and the event insured against, such that
the occurrence of the event will cause substantial loss or injury of some kind to the insured.
Insurable interest is of two types – Contractual and Statutory. Where an insurance contract
requires the existence of an insurable interest for effecting the policy, such interest is known as
Contractual insurable interest while an insurable interest mandated by a particular statute dealing
on insurance is known as Statutory insurable interest. It is noteworthy that neither the British
Life Assurance Act, 1774 nor the Insurance Act, 1938 of India defines the term insurable
interest. Insurable interest is the legal right of the insured in insurance. The taking of an
insurance policy does not protect the insured property from loss or damage, but protects the
insured’s interest in the property.
The interest is considered as a form of property in the contemplation of law. It is assimilated to
an actionable claim transferable to the same extent and within the same limits.
Let's take a case law in detail that will clear the picture of the difference between these two kinds
of insurable interest in the case of Macaura v Northern Assurance Company one macaura insured
timber in his estate against fire. He sold timber to a company of which he was the sole
substantial shareholder. Thereafter most of the timber was destroyed by fire and he demanded
that he should be indemnified. The insurer succeeded in refusing to comply with the demand.
The insured had no statutory interest in the assets of the company though too he would suffer
loss on the company losing its property, nor he had any contractual interest under the policy
because he could not prove interest at the time of the loss. Though the insured had no statutory
1
KSN Murthy & Dr.KVS Sarma “Modern Law of Insurance” 4th Edn. Butterworths @ pg. 59
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interest the policy was held to be not a wagering contract because even being the sole
shareholder he had a interest or better call insurable interest in the property.2
2
M.N. Srinivasan “Principles of Insurance Law” 7th edn @ Pg. 75 para 8
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Nature of Insurable Interest
The insurable interest must have a pecuniary value i.e. it must be measurable in terms of money.
It must be recognised and enforceable by law.3 In Geismar v. Sun Alliance and London
Insurance Ltd. and another4 it was held that although the purchase of goods abroad will normally
result in the insured having an insurable interest in these goods but, if he smuggles them into the
country without disclosure to the Customs authorities, an insurable interest does not exist, and he
is possession of the goods illegally, which are subject to forfeiture. In Lucena v. Craufurd5
insurable interest was explained as:
“… A man is interested in a thing to whom advantage may arise or prejudice happen from the
circumstances which may attend it. 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 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 dangers as to have a moral certainty of advantage of benefit, but for
those risks or dangers, he may be said to interested in the safety of the thing…. The property of a
thing and the interest divisible from it may be very different; of the first, the price is generally
the measure, but by interest in a thing every benefit or advantage arising out of or depending on
such a thing may be considered as comprehending…”
Although the insurable interest has to be enforceable by law, the enforceability is not the sole
criterion, howsoever strong it might be. Lord Eldon has observed that expectation, though
founded on highest probabilities, is not interest and it is equally not interest whatever might have
been the chances in favour of expectation. In Moran Galloway v. Uzielli6 Lord Walton observed
that the definition of insurable interest has to be continuously expanding, and dicta in some of
the older cases, which tend to narrow it, must be accepted with caution. Interest may thus be
possessory, expectant or contingent or equitable and not necessarily vested.
3
E.J.D. Peverett “Fire Insurance Law and Claims” Pg.161
4
[1977] 3 All ER (QBD)
5
[1806] 2 Bos. & P(N.R) 269
6
[1905] 2 KB 555, 563
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It is the existence of an insurable interest that alone differentiates a contract of insurance, being a
contract of indemnity, from a mere wager. Therefore, for the validity of an insurance contract,
the existence of an insurable interest is a mandatory precondition.
The nature of insurable interest can thus be, briefly, understood by the following points:
1. The interest should not be a bare sentimental or emotional right or interest;
2. It should be a right in a property or a right arising from a contract made in respect to that
property;
3. The interest must be pecuniary; mere inconvenience or disadvantage cannot be regarded as an
insurable interest;
4. The interest should be lawful and must not be illegal, immoral or opposed to public policy.
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Wager and Insurance
In a contract of wager all the parties does not have any interest in happening of the event other
than the sum or stake him will win or lose. This is what marks the difference between a wagering
agreement and a contract of insurance because every contract of insurance requires for its
validity the insurable interest. Insurance affected without insurable interest is no more than a
wagering agreement and therefore void. "Insurable interest" means the risk of lose to which the
assured is likely to be exposed by the happening of the event assured against. In a wager on the
other hand neither party is running any risk of loss except that which is created by the agreement
between two or more than two parties.
Also wagering is illegal in India and against to the norms of society or in short wagering is
against public policy and distinction between a insurance and a wager is this a insurance is
properly speaking a contract to indemnify the insured in respect of some interest which he has
against perils which he contemplates it will be liable to.
In case of Alamani v. Positive Govt Security Life Insurance Co the plaintiffs husband took a
policy of insurance on the life of Mehbub Bi, the wife of a clerk working under him and about a
week later got the policy assigned in the favour of the plaintiff, Mehbub Bi died a month later
and the plaintiff as assignee claimed the sum assured and in this case court find that there was no
insurable interest present in this case and hence this insurance contract held to be contract of
wager and held to be void.
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Time or duration of insurable interest
The time when the insurable interest must be present varies with the nature of the insurance
contracts. The question is whether insurable interest should exist at the time when the contract is
formed or should it also continue to exist until it is discharged but as we have seen in life
insurance the presence of insurable interest is necessary at the commencement of the policy
although it is not necessary afterwards, not even at the time of occurrence of risk. So it should be
there in life policies at the time of taking the policy it need not exist at the time when the lose
take place or even when the claim is made under the policy. Life insurance contracts are not
strictly speaking contracts of indemnity.
In fire insurance it's required both at the commencement of the policy and at the time when the
risk occurs. In a sense, therefore it may be said that insurable interest is doubly insisted upon in
fire insurance. The insurance interest is necessary at both the times because it is treated as a
personal contract and also a contract of indemnity. And even the onus that the fire was
intentional is on the insure not on insured. In a marine insurance contract the presence of
insurable interest is necessary only at the time of the loss. It is immaterial whether he has or does
not have any insurable interest at the time when the marine insurance policy was taken.
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Insurable Interest and Life Insurance Contracts
A life insurance contract is an aleatory contract. An aleatory contract may be described as a
contract based on an element of chance or uncertainty. In a life insurance policy, the insurer
contracts to pay the insured, in consideration of a price called as premium, a specified sum of
money, either to the latter, upon maturity of that policy or should death happen to him, to his
legal dependants or executors as the case may be.
In Dalby v. India and London Life Assurance Co.7 it was held that a contract of life insurance is
not a contract of indemnity, like a marine or a fire policy, but is a contract to pay a definite sum
in consideration of an annuity paid during life.“A contract of life insurance may be defined as
one in which one party agrees to pay a given sum of money upon the happening of a particular
event contingent upon the duration of human life in consideration of immediate payment of a
smaller sum or other equivalent payments by the other”.8 So as to effect a life insurance contract,
it is necessary that the person, who is privy to the contract, should have an insurable interest in
the life of the person, for whom the policy is being taken. Although it is difficult to lay down in a
precise manner as to what would constitute insurable interest in a life insurance contract, yet it is
a well settled principle of law that there has to be an insurable interest attached to a life insurance
contract. It is opposed to public policy to allow a person, who has no interest in the life of
another person, to take an insurance policy in the name of the latter. In England, insurable
interest is mandated by the Life Assurance Act, 1774 while in America and in India it is required
as a matter of public policy.
The most important aspect of insurable interest in a life insurance contract is that the interest
should exist at the time of commencement of the policy, but it need not continue to exist at the
time of the occurrence of the loss. Every man is presumed to have an interest in his own life and
he is not required to show at any point that he had some particular interest in the continuation of
his life. In Wainwright v Bland9 an executor, suing on a policy effected by his testator on two
years of his life, was not required not to show any significant reason for making an insurance for
7
[1854] 15 CB 365: 139 ER 465
8
Bunyon on Life Insurance, 4th edn; followed by Cozens Hardy MR in Joseph v Law Integrity Insurance Co.[1912]
82 LJ 187: [1912] 2 Ch 581
9
[1836] 1 M&W 32
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such a limited time period. As regard spouses are concerned, it is generally believed and
accepted that a wife has an insurable interest in the life of her husband and vice versa. Lord
Kenyon CJ declared that “…it must be presumed that every wife had interest in the life of her
husband…”and it is not necessary for her to prove that she had an insurable interest only because
a large sum of money would go from her husband’s estate to another, upon his death.10Farwell
LJ has held that a wife may insure a husband’s life, and the husband’s his wife’s. 11The English
law limits insurable interest on a sentimental basis only to the relationship of husband and wife.
As far as children are concerned, in England, the rule, which was recognised in the case of
Halford v Khymer12, is that a parent has no insurable interest in the life of his child as mere love
and affection is not sufficient to constitute insurable interest. Similarly a child does not have an
insurable interest in the life of his parent provided he is not dependent on the latter.13 Therefore,
under English law, insurable interest is limited to statutory insurable interest.14 While the English
law restricts the scope of insurable interest to the parameters set by the statutes dealing on the
subject, the American law extends the principle to certain other relationships viz parent and son,
grandparent and grandchild etc. In an American case15, it was held that any relative may insure
the life of another when he is so related to the other to the claim for maintainance enforceable at
law.
The Insurance Act, 1938 of India does not contain any provision which explains the concept of
insurable interest. In the absence of any statutory explanation, courts take recourse to the English
and American decisions which are in conformity with the prevailing currents of social, economic
and religious thought in the society. Thus in India too, apart from husband, wife or any other
close relative, any person, who has a legal right to derive maintenance from a person, can take a
life insurance policy on the life of the latter without any proof of insurable interest. Life
insurance is a husband’s privilege, a wife’s right and a child’s claim.
10
Reed v. Royal Exchange Assurance Co.[1795] Peake Add Cas 70
11
Griffith v Fleming [1909] 100 LT 765: [1909] 1 KB 805: [1908-10] All ER 760 CA
12
[1830] 10 B&C 724: 109 ER 619
13
Howard v. Refuge Friendly Society [1886] 54 LT 644: 2 TLR 474
14
In England, insurable interest is governed by the English Marine Insurance Act, 1745, the English Life Assurance
Act, 1774 and the English Gambling Act 1845.
15
Aetna Life Insurance Co. v France [1876] 94 US 561
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Another set of relations which acquire insurable interest for affecting a life insurance, are
relations which originate from contractual transactions. Therefore a creditor has an insurable
interest in the life of the debtor to the extent of his interest and where the debt has been
guaranteed by a surety, then on the life of the surety too.16 In Powell v Dewy17 it was held that a
partner of a firm has no insurable interest in the life of the other partner, except when the latter is
indebted to him personally and only to the extent of such indebtedness.
16
Beauford v Saunders [1877] 25 WR 650
17
5 [1898] 123 Log NC
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Insurable Interest and Fire Insurance
Like all insurance contracts, a fire insurance contract also requires insurable interest on the
subject matter insured.18 The insurable interest need not arise from ownership19 alone, it can even
arise in case of lawful possession or from a contract dealing with the subject matter insured. A
fire insurance contract is a personal contract to indemnify a person for any loss which he may
suffer upon the destruction of the thing insured, from fire, explosion etc and therefore, if the
person transfers the thing insured to another, he loses his insurable interest in that thing and the
contract between him and the insurer comes to an end. It is the insurable interest of a person that
is protected by a fire insurance contract and not the subject matter insured. A person has an
insurable interest in the thing insured, if he likely to suffer a direct loss upon its destruction.
As far as fire insurance is concerned, there are three essentials of insurable interest:
1. There must be a physical object which is capable of being destroyed, lost or damaged;
2. That physical object must constitute the subject matter of the insurance; and
3. The insured must have some legal relationship thereto so that he benefits by the preservation
of the property, and is prejudiced by its destruction, loss or damage.20 In Macaura v Northern
Assurance Co.21 it was held that neither a shareholder nor a simple creditor of a company has any
insurable interest in any particular asset of that company, although both a shareholder and a
creditor may suffer loss upon destruction of their company’s property. Where a person has
contracted with another to sell the subject matter insured, he retains an insurable interest in that
subject matter till the time the title in the subject matter is transferred, in finality, to the buyer. In
a case,22where a property, insured by fire, was contracted to be sold and pending transfer of title,
it was destroyed by fire, it was held that the owner of the property was entitled to recover the
insurance money as he was still interested in the safety of the property.
18
Castellian v Preston [1883] 11 QBD 380 @ pg. 397(as cited in para 606 of Halsbury’s Law of England, Vol. 25, 4th
Edn; pg 325)
19
Ward v Carttar [1865] LR 1 Eq 29 @ pg 31: Romilly MR held that to have an insurable interest, it is not necessary
that the owner of the subject matter insured should actually be in possession of that subject matter.
20
Relevant excerpts from “Fire Insurance Law and Claims” by E.J.D. Peverett; pg 161
21
9 [1925] AC 619 (as cited in Dr. Avtar Singh “Law on Insurance”1st edn @ Pg. 62)
22
Collingridge v Royal Exchange Assurance Corpn. [1877] 3 QB 173: 47 LJ QB 32: 37 LT 525
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In a fire insurance contract, the insurable interest in the property should exist both at the
inception of the policy as well as at the time of the loss. If it does not exist at the commencement
of the contract, it cannot be the subject matter of insurance and if it does not exist at the time of
loss, he does not suffer any loss and so needs no indemnity.23
Wharfingers and warehousemen, with whom goods are entrusted for safekeeping and custody,
have an insurable interest in those goods and so do carriers, inn keepers and mortgagees. A
tenant has an insurable interest in the property which he rents. The insurable interest of a tenant
may arise either through an express clause in the tenancy agreement, that he shall be responsible
for insuring the property or otherwise, as he stands to lose the beneficial enjoyment of the
property in the event of destruction, which is sufficient to give him an insurable interest. A
tenant, who has contracted to insure a property, continues to have an interest in it, even after his
tenancy has come to an end, if his liability continues.24 But a person does not have any insurable
interest in a property which is spes successionis or where the owner has promised to bequeath
that property to him, by a will, on the former’s death for the owner might change his mind later.
Bailees are also entitled to insure goods25 which are entrusted to them for custody
notwithstanding the fact that their liabilities to the owners or bailors depend upon a number of
circumstances, governed by statutes, contracts, common law and customs in trade. A bailee need
not show the nature of his interest to the insurer while affecting an insurance policy, provided the
policy is affected solely on his own behalf.
There are instances where in two or more persons are interested in the same subject matter
insured viz. landlord and tenant, mortgagor and mortgagee, bailor and bailee etc. In such cases
the insurable interests of both the persons are quite separate and distinct from each other and
therefore both of them can effect a separate insurance policy on the same subject matter, both the
insurance policies being valid.
23
Relevant excerpts from M.N. Srinivasan “ Principles of Insurance Laws” 7th Edn; Pg.200; para 5
24
Heckman v Isaac [1862] 6 LT 383
25
Waters v Monarch Fire and Life Assurance Co. [1856] 5 E & B 870
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Insurable Interest and Marine Insurance
A marine insurance contract is one in which the insurer promises to indemnify the insured
against any loss to the insured subject matter, be it a ship or the cargo, arising out of the perils of
the sea, subject to the conditions and the extent of the policy.26 Justice Blackburn defines a
marine insurance policy as a contract of indemnity against all losses occurring to the subject
matter of the policy from certain perils during the adventure.27Therefore, a person can only
insure the subject matter if he is interested in the preservation and safety of that matter. Every
person who has an interest in a marine adventure has an insurable interest28 and a person is said
to be interested in a marine adventure if he stands in such a relationship with the thing insured
that upon its destruction, he may incur liability or suffer a loss, on it.29
A person has an insurable interest in the subject matter insured when he has such a connection
with it that:
1. He will derive some pecuniary benefit or advantage from its preservation; or
2. He will suffer some pecuniary loss or damage from its destruction, termination or injury by the
happening of the event insured against.30
A marine insurance policy affected without an insurable interest, like all other insurance
contracts, becomes a mere wager, void in the eyes of law.31 It is not necessary that to have an
insurable interest, the person insuring must be in possession of a vested right. It is sufficient to
constitute an insurable interest, if there is expectancy along with an existing present title, out of
which such expectancy has arisen. But expectation of some benefit, which might arise from
26
Section 3 of the Marine Insurance Act, 1963[ Section 1 of the English Marine Insurance Act, 1906 ] defines
marine insurance as : “A contract of marine insurance is an agreement whereby the insurer undertakes to
indemnify the assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, the
losses incidental to marine insurance”
27
Blackburn J in Lloyd v Fleming [1872] LR 7 QB 299, 302 (as cited in KSN Murthy and Dr. KVS Sarma “Modern Law
of Insurance” 4th Edn, Butterworths @ Pg 252 para 1)
28
Section 7(1) of the Marine Insurance Act, 1963 [Section 5(1) of the English Marine Insurance Act, 1906]
29
Section 7(2) of the Marine Insurance Act, 1963 [Section 5(2) of the English Marine Insurance Act, 1906]:
30
Relevant excerpts from “Modern Law of Insurance” by KSN Murthy and Dr. KVS Sarma , 4th Edn, Butterworths;
Pg. 69 Para 4.
31
Section 6 of the Marine Insurance Act, 1963
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subject matter in which the person insuring is not actually interested but expects to be interested,
is not an insurable interest. A partial as well as a contingent interest is also insurable.
Insurable interest, in a marine policy, must exist at the time of the loss though it is not necessary
that it should be in existence at the time of affecting the policy.32The policy will be considered
valid if the insured insures the subject matter without being interested in it, at the time of
effecting the policy and if he acquires an interest in it after it has been lost, he can recover under
the policy.
A marine policy, just like a fire policy, is a personal contract and hence, the insurable interest of
the insured in the subject matter continues till the time he is in actual possession of it. If he has
transferred the title in the subject matter to another person, through an agreement to that effect,
he ceases to have any interest in it and the policy will also come to an end. So long as the seller
of a ship or of the goods retains any interest in the property, he can insure it to the extent of his
interest. In Reed v Cole33it was held that where the owner of a ship has sold her under a contract
which requires him to pay the buyer a certain sum of money should a loss happen within a
particular period of time, the owner has an insurable interest to the extent of such a sum.48
Where the subject matter insured has been mortgaged, the mortgagor has an insurable interest in
that subject matter to its full value and the mortgagee has an insurable interest on any sum due or
to become due under the contract.49 A trustee who has a legal interest in the subject matter
insured may insure in respect of that interest to the full value of the subject matter, and may
recover the whole amount on the condition that he shall hold the amount recovered, in trust for
the bonafide beneficiary.34
Even captors have an insurable interest over the ship or cargo captured by them. As they are
generally in possession of the captured property and liable to pay damages if they take
possession illegally, it is generally accepted that they have an insurable interest over such a
proper
32
Section 6(1) of the Marine Insurance Act, 1963
33
[1764] 3 Burr 1512
34
Ebsworth v Alliance Marine Insurance Co[1873] LR 8 CP 596 @ pg 638 according to Brett J
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Conclusion
Insurable interest is a mandatory precondition to all types of insurance contracts, although it is
not possible to give an exhaustive list of the various persons who are said to possess insurable
interest. Whether a person has an insurable interest in the subject matter or not is a question of
facts and circumstances of each case and the court’s interpretation of the insurance contract’s
clauses. But it is an undeniable truth that insurable interest is a sine qua non to a contract of
insurance. In fact, it is the existence of insurable interest which differentiates a contract of
insurance from a wager, which is void in the eyes of law. Every contract of insurance, to
whichever category it may belong to, shall display an insurable interest and in the absence of
such an interest, it shall be void and inoperative.
To prevent gambling insurable interest is necessary. If insurable interest is not required, the
contract would be gambling contract and would be against public interest. For example you can
insure the property of another and hope for an early loss. One can similarly insure the life of
another person and hope for an early death. These contracts would be gambling contracts and
would be against public interest and public policy and so need to be checked and stopped.
If insurable interest is not required, a dishonest person could purchase a property's insurance
belonging to someone else and then deliberately cause a loss to receive the proceeds; but if the
insured stands to lose financially nothing is gained by causing the loss. Thus moral hazard is
reduced. In life insurance, insurable interest requirement reduces the incentive to murder the
insured for the purpose of collecting policy claim or anyone can set fire his home to claim the
fire insurance claim or one can kill any third person insured by him.
The concept is also important to measure the amount of the insured's loss in property insured.
Most of the property insurance is contracts of indemnity and the measure of recovery is the
insurable interest of the insured. In the event of loss, payment cannot exceed the amount of one's
insurable interest as the principle of indemnity shall apply. Thus it can be finally concluded from
whole discussion that the insurable interest is very important ingredient of the insurance and it
could be said that without insurable interest in subject matter of the insurance there can be no
insurance.
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References
EW Patterson “Elements of Insurance Law” Pg. 109
Gaskell, N. J. J., Debattista, C., Swatton, R. J., (1992), “Chorley
and Giles’ Shipping Law”, Pitman.
Hodges, Susan, (2004), “Law of Marine Insurance”, Cavendish
Publishing Limited.
KSN Murthy & Dr.KVS Sarma “Modern Law of Insurance” 4th
Edn. Butterworths @ pg. 59
M.N. Srinivasan “Principles of Insurance Law” 7th edn @ Pg. 75
WH Rodda “Fire and Property Insurance” Pg. 22
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