INSURABLE

INTEREST
{
Introduction:

 A person who want to obtain insurance (either indemnity

or non-indemnity policy) must have Insurable Interest (II)
on the Subject Matter (SM) to be insured

 Without II the insurance contract is void and unenforceable

 Definition : the particular relationship or nexus between

the person taking out an insurance policy and the subject
matter of the insurance which must exist for there to be a
valid contract of insurance.

 It is a legal right to insure arising from the legitimate

financial interest (recognised by law) which an insured has
in a subject matter of insurance.
 There is no prevision making II compulsory in FSA

 H/ever requirement for II in life insurance is mentioned in

para 3 of 8th schedule FSA – policy void unless there is II

 A proposer (person who wish to obtain insurance) is said to

have II if he stands to benefit from the existence of the SM
or lose in event of its loss or damage

 Financial interest which is not legally recognized cannot be

insured since there is no basis to effect a valid insurance.
 The requirement that the insured must have an insurable
interest in order to maintain his claim applies to every
type of insurance

 So Insurable interest can be conclude as- a financial

interest in any person, property, liability or rights that
can be insured as a subject matter of insurance in a
legally recognised relationship that will cause a loss
should any peril/mishap occur.

 To prevent the use of insurance policies as a form of

gaming or wagering.
TWO CONCEPTS:

(1) Subject matter of insurance:

 Any property, potential legal liability, rights, life &

limbs to be insured.

(2) Subject matter of insurance contract:

 Any financial interest of an insured in the subject matter

of insurance.
Feasey V Sun Life Insurance f Canada(2003)

Waller L.J indicates 3 Q have to be asked where an insurable interest

issue is raised:

1. wht is the SM of the policy? - involves interpreting the policy to see

exactly wht has been insured.

2. wht is the interest of the insured in this SM of the policy? - the court
have to consider the range of possible interest that the insured may have
in the SM.

3.Does the policy encompass the insured’s II ? - whether the policy by its
terms actually covers the II of the insured in the insured SM or whether
it refers to some other interest.
When does Insurable Interest Exist?

 For general Insurance(non-marine):

Must exist at the beginning & at the time of loss.

 For marine Insurance:

Must exist at Time Of Loss.

 For Life Insurance :

At the Beginning/time of contract only.
Who has Insurable Interest?/ perties with insurable Interest?
Includes:

 An owner of ship, cargo or freight

 An insurer,who may reinsure its risk under the contract

of insurance.
 An agent

 A mortgagor & mortgagee

 A carrier – co. that transport people/goods.

 A lien holder, eg: a shipbuilder or a salvor.

 A spouse

 An employer

 Minor child

- etc
Effect of no Insurable Interest
 Cannot insure the subject matter

 If insure, the insurer have no liability to pay

Macaura V Northern Assurance Co Ltd & ors

the owner of a supply of timber sold the timber to a
company which he is a shareholder. After the sale, he
bought a policy to cover the timber under his own name.
fire broke and the timber were burned. Insurer refused to
pay on ground of no insurable interest. Court allowed the
insurer to refuse paying
Insurable Interest in Life Insurance
 Insuring own life - allowed
Griffith V Fleming (1909) 1 KB 805 – Kennedy L.J said:
“ That the insurance by a man on his own life is not within
the mischief of the Act as a man does not gamble his own life
to gain a Pyrrhic victory by his own death”.

 Insuring the life of others – allowed but limited

- It must exist at the beginning or at the time of contract only
- English cases have introduced 2 other principles which
govern II in life insurance (insuring some one else’s life):
1. there must be pecuniary interest of some kind.
2. II is presumed to exist when a person insures his
own life or that of his spouse.
 Para 3(1) sch 8 of FSA: any policy obtained by a person
without II on the SM being insured is void

 Exceptions to the need of II - II is presumed to exist even

without being proven
Para 3(3) 8th Schedule FSA
a. spouse and child
b. ward under the age of majority
c. employee
d. person who he is dependent on for maintenance /
education
 An assurance on one’s own life or that of one’s spouse is not regarded
as a contract of indemnity, so that there is no necessity for the assured
to show the extent of his interest at the time of the loss.

Dalby V The India& London Life Asurance Co (1854)

Life insurance policy was not a contract of indemnity & interest at the
time of the loss need not be shown in order to recover.

Graffith v Flemming,
Griffith and his wife each signed a proposal form for a joint life policy
on their lives for £500 and both contributed towards the premium.
After the policy was taken, the wife committed suicide and the
husband claimed the sum assured. The insurer alleged that at the time
of taking the policy the husband had no insurable interest in his wife's
life as required by the Life Assurance Act, 1774. Decreeing the claim
vaughan Williams L.J. held that the husband has an interest in his
wife's life which ought to be presumed and that “it is unnecessary to
go into the evidence to show any pecuniary interest of the husband…”
 Insurable Interest In Non-Life Insurance
 It is a right in the property or a right derivable out of some
contract about the property & may be lost upon contingency
affecting the possession or enjoyment of the party.

 A mere expectation of loss is insufficient.

Macaura V Northern Assurance Co Ltd

The sole shareholder of a limited company, who was also a
substantial creditor of the company, insured in his own name
timber owned by the company. The House of Lords held that
he had no insurable interest in the timber which had been
subsequently destroyed by fire. As a share holder he had no
right to the property owned by the company.
 An insurable interest must normally be proved to have
existed both at the beginning or at the time of the
contract and at the time of the loss.

 For instance: Under fire Insurance- the person named in

a policy of fire insurance must have an Insurable
interest in the property at the time of the contract as
well as at the date of the fire.

 Insurable Interest can be derived from

a. legal or
b. equitable right in respect of property being insured
eg :warehouseman, wharfinger or common carrier will
have a sufficient interest in the goods deposited with
him.
 A person who has a legal or equitable right over goods has
an interest in such goods.

 This includes not merely the owner of the goods but also
persons having other identifiable legal or equitable
relationship with goods.

 Eg: the party to a contract for the sale of goods who either
has property in the goods or bears the risks of their loss has
an ins interest.

 A bailee has Ins Interest & can insure the full value of the
goods provided he holds the proceeds in trust for the
owners.
 An executor (de son tort) has an insurable interest in
the goods belonging to the deceased.

Pacific & Orient Insurance Co Sdn Bhd V Lim Sew Chong &
Anor (1985) 2 MLJ 60
The plaintiff sought a declaration that a policy issued by them to one Ng
Hwee Bin, deceased in respect of a lorry was void. Defendant were the
administrators of the deceased’s estate. The said policy was issued at the
request of Ng Moh Chee the deceased’s son, after his father’s death. The
plaintiff sought to avoid the policy, on the ground that as Ng Moh Chee
was not the registered owner of the lorry, he had no Ins Interest therein.
It was held that in managing the estate of his deceased father, Ng Moh
Chee had assumed the role of an executor de son tort & as such he had an
Ins Interest in the lorry.
INSURANCE INVOLVING THE INTEREST OF 3rd PARTY.

Ways in which the interest of third party can be involved in an

Insurance policy;

1. Where the insured and 3rd party have II ( even though limited in
nature) in the goods & the loss affects both interest.

Waters V Monarch Fire & Life Assurance Co

W was a wharfinger & houseman. He had a fire policy issued by the
defendants. The policy covered, that goods in his warehouse & ‘goods in
trust or in commission therein’. W had in his warehouse goods belonging
to his customers which were deposited with him in his capacity as
warehouseman
He had a lien for the charges for the cartage & warehouse rent but no
further interest of his own in those goods. After a fire which destroyed
W’s warehouse & all the goods, the defendant paid the value of W’s own
goods & the value of his lien on his customers’ goods but refused to pay
the value of the customers’ interest in their goods.
Ct held: the goods of the customers were in trust, within the meaning of
the policy & W was entitled to recover the entire amount.
2. Like the 1st, except that the particular loss affect only the
3rd party’s interest & not the insured’s.

Hepburn V Tomlinson (Hauliers) ltd 1966 AC 451

T were carriers of a quantity of tobacco for the owners. As was required of
them by the contract of carriage, T insured the tobacco which was
subsequently stolen under circumstances which attached no legal liability
to T. T claimed under the policy on behalf of the owners.
Ct held: that they were entitled to recover as on its true construction the
policy covered the goods & not merely the legal liability of the carriers. As
bailees, T had an insurable interest in the tobacco because of their potential
legal liability if they were negligent. T could claim for the full value of the
goods.
Concurrent Insurable Interest
 One person has an Ins Interest in a particular
subject matter concurrent with that of others.

 Such parties may then insure either jointly or

separately event though their concurrent interest
may be different.

 Eg: between - a vendor & purchaser

- landlord & tenant
- bailor & bailee
- developer & contractor
- mortgagor & mortgagee
That’s All
TUTORIAL 1

Aaron is the owner of a textile mill located in Damansara. He also has a warehouse for storing textiles
adjacent to the mill. At the beginning of last April, Aaron mill has received reservations forty (40) rolls of
fabric from Nagiya Textiles. Aaron managed to complete the order in two (2) months. Nagiya Textile paid
for the fabric but asked Aaron to keep them in his warehouse since they were having some problem at
their own warehouse.

On September 12, Aaron purchased two (2) fire policies from Etique Insurance Berhad (EIB). One to
protect his warehouse and another to protect the fabric belonging to Nagiya Textile. After assessing the
value of the warehouse and the fabric, the EIB issued a two (2) cover notes and Aaron paid the
premiums for both policies.

On September 24, a big fire occurred in the area. The fire destroyed five (5) buildings including Aaron’s
warehouse. On September 30, Aaron filed 2 claims to EIB to obtain compensations against the loss to
his warehouse and the goods contained therein.

On October 12, EIB sent a letter to Aaron refusing his claim for loss to his warehouse on the ground that
no insurance protection provided by the EIB as there was no policies issued. EIB also stated that they
also will not pay the compensation for the damage to the fabric belonging to Nagiya Textiles. Since
Aaron is not the owner of the fabric, he have no right to insure the fabric.

Advise Aaron on his right based on related cases.