ROLE OF INSURABLE INTEREST IN CONTINGENCY INSURANCE AND INDEMNITY INSURANCE

Insurable interest is a basic requirement of any contract of insurance unless it can be waived lawfully. At a general level, the requirement of an insurable interest means that the party being insured must have a relationship in the subject matter of the insurance regardless the nature of the subject matter as the absence of such relationship would make the contract void or unenforceable. CONTINGENCY INSURANCE A contingency insurance contract is one that involves the insurer paying out the insured a certain amount when a risk occurs and some of the kinds of insurance of contingency is a life insurance. As every contract of insurance, a requirement of insurable interest is needed. However, the enforceability of a contingency insurance contract needs to satisfy certain factors. It is a requirement of the Life Insurance Act 1774 in s.1 that an insured should have an insurable interest in the life of the insured and the insured can only claim on such policy at the time when the policy was taken out as was seen in the case of Dalby v India and London Life Assurance where the court held that an insurable interest need only exist at the date of effecting the policy and life insurance is not a contract of indemnity. Another requirement of an insurable interest in a contingency insurance contract is based on the nature of the insurable interest. The nature of the insurable interest based on s.3 of the 1774 Act has to be of a pecuniary nature. However, this has been presumed in certain circumstances as s.3 would be inapplicable in such circumstances and this is when a person insures his own life and also when the person insures the life of his spouse. The former was seen in the case of Wainewright v Bland where the court held that everyman is presumed to have an interest in his own life and every part of it. This statement doesnt lack clarity as every individual would have an indefeasible right to insure his life. The latter was seen in the case of Griffiths v Fleming where a husband was held to have insured the to have an insurable interest in the life of his wife and didnt need to show a pecuniary interest in the life of his wife. Despite the decisions in these cases, the law as very strict with the requirement of

having a pecuniary interest as without a show of suffering a financial loss, the claim wont have succeeded. The courts also took into consideration other types of family relationships such as that of a child and parents and took a different approach in this relationship. A child would be seen to have an insurable interest in the life of his parents based in the legal obligation of the parents to support the child. However, the courts are stricter in their approach when it has to do with an adult as this was seen in the case of Harse v Pearl Life Assurance where claimant took out a policy on his mothers life and stated expressly that it was for funeral purposes. Upon her death, the court held that there was a lack of insurable interest in the policy and the claimant was not legally obliged to bury his mother. The same outcome would be reached conversely when a parent takes out a policy on the life of their child as was seen in the case of Halford v Kymer where the court held that a parent wont have an insurable interest in the life of his child even after the claimant argued that if his son dies, the chance of receiving care would be reduced. In a business relationship, the courts have also arrived at similar conclusions as regards the requirement of insurable interest as it would be legally enforceable only when there is a pecuniary obligation or loss. This was seen in the case of Hebdon v West where an employer took out two life policies on his employee for certain amounts and made a promise that he wont ask for a debt owed upon his death and the court held that he didnt have an insurable interest by virtue of the promise which he made to him and also the payment of the first policy was a bar to the employers claim by virtue of s.3 of the 1774 Act as the court also held that where a man has an insurable interest in the life of another and insures it in several life policies and recovers one to the full amount, the cannot recover anything upon the other policies. The courts have however taken a more liberal approach as was seen in the case of Feasey v Sun Life Assurance where the court held that there was an insurable interest on the grounds that a contingent liability to indemnify members for death or disablement could properly be described as a legal relationship. In addition to the requirement of an insurable interest by virtue of s.1 of the Act, s.2 also requires that the name of the insured by inserted into the policy. This can lead to unjust decisions as was seen in the case of Evans v Bignold where the claimants wife insured her life by virtue of her husband securing a loan and his name was not included in the policy as

required by s.2 and it was held that the policy was illegal and void even though he had an insurable interest in the life of his wife. This makes us to understand that it is not just sufficient to have an insurable interest by virtue of s.1 of the Act and s.2 of the Act shall render the policy unlawful as this was seen in the case of Harse v Pearl Insurance. However, an insurer would be able to claim premiums paid in a policy where there was a fraudulent misrepresentation by the insurer as was seen in the case of Hughes v Liverpool Victoria.

INDEMNITY INSURANCE An indemnity insurance contract also has requirements which have to be fulfilled to be enforceable. However, in an indemnity insurance, an insurable interest is not required as was held in the case of Siu Yin Kwan v Eastern Insurance. Generally, for insurance contracts, it would be enforceable once a policy holder has suffered a loss and the amount agreed in the insurance contract is what would be paid out by the insurance company. The Gambling Act 2005 by virtue of s.335 also emphasised that an insurable interest is not needed in an indemnity contract. However, this may lead to abuses but has been covered by the common law indemnity principle which allows a policy holder to get compensation for an amount not exceeding his loss. In an indemnity insurance contract, an insurable interest can also be seen in the goods in third parties as was seen in the case of Tomlinson v Hepburn where the claimant took a goods in transit policy on goods which were to be transferred to a warehouse and was stolen and the court held that there was an insurable interest in the goods because it was a policy taken for that purpose. In an indemnity insurance, insurable interest can also be waived as was seen in the case of Prudential Staff Union v Hall where the court held that an insurable interest was no bar to the enforcement of the policy because the Life Insurance Act 1774 was inapplicable. Conclusively, it can be seen that despite the importance of insurable interest in a contract of insurance, it wont apply to every type of contract of insurance depending on which is chosen by an individual.