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The concept of insurable interest was originally introduced to combat the potential moral By way of example, the court referred to Littlejohn v Norwich Union Fire Insurance
hazard associated with strangers to the subject matter of the insurance having an Society 1905 TH 374, where a husband married out of community of property was found
interest in the occurrence of the insured event by virtue of the contract alone. (It was to have an insurable interest in goods of his wife which constituted trading assets in
feared that this might provide an unhealthy incentive for the destruction of the property or a business the husband managed. Reference was also made to Refrigerated Trucking
life concerned.) It was also introduced to prevent gambling under the guise of insurance. (Pty) Ltd v Zive NO (Aegis Insurance Co Ltd, Third Party) 1996 2 (T) 361, where it was
found that the owner of the vehicle had an insurable interest to obtain cover in respect of
The court found that there is no South African statute that lays down the need for an third party liability incurred by drivers of its vehicles. The insurer's promise to pay to the
insurable interest, and that there is no justification for the importation of the statutory insured an amount equal to the liability incurred by the driver was enforceable, even
requirement of English law. The perceived mischief originally targeted by the insurable though the insured did not incur that liability itself and did not suffer a patrimonial loss.
interest requirement is handled in South African law by the statutory regulation of
gambling, and the common law in relation to unlicensed gambling agreements, which are Notwithstanding the generally liberal approach to the enquiry as to the existence of an
stigmatised and discouraged as unenforceable. insurable interest, the court found that the question of insurable interest cannot be
divorced from the type and extent of recovery permitted under a policy. For example, in
In the circumstances, the court held that the proper enquiry in South African law is not Manderson t/a Hillcrest Electrical v Standard General Insurance Co Ltd 1996 (3) SA 434,
whether there is an insurable interest but rather whether the contract in question ought to the genuine interest that an employer had in his employee retaining the use of his
be regarded as an enforceable contract of insurance or an unenforceable agreement of personal vehicle was found to be insufficient to give rise to an insurable interest for the
wager. purposes of a policy of insurance covering the full value of the vehicle.
Turning to the facts of the Lorcom case, the court found that a proper interpretation of the How this contractually imported requirement of an insurable interest should be
policy of insurance did not compel the insured to prove that it had suffered a patrimonial interpreted in circumstances where the parties have made an express choice that South
loss, but rather that there be loss or damage to the vessel. The insured merely needed to African law should apply remains to be seen. (The provisions of clause 19 of the Institute
demonstrate "an interest sufficient to render enforceable a policy providing cover Cargo Clauses (A), provides that the insurance is subject to English law and practice.) It
measured with reference to the value of the vessel." is certainly arguable that the English law understanding of insurable interest would play a
greater role in speaking to the intention of the parities in these circumstances.
While the court considered that the insured's temporary right of use of the "Buccaneer"
was, by itself, insufficient to sustain insurance cover measured with reference to the Having said this, it should be noted that even in English law a more flexible approach to
replacement value of the vessel, the additional factual expectation that it had of the question of insurable interest has started to take root, with questions being raised
becoming the owner of the vessel (in terms of a series of contracts involving its regarding its on-going usefulness.
shareholder and a purchaser), gave rise to an insurable interest in such cover.
Conclusion
In any event, the court held that the fact that Lorcom held 100% of the shares in the The Lorcom case sounds a clear warning to underwriters regarding the difficulties
vessel owner put the question of insurable interest beyond doubt, as it gave the associated with the rejection of a claim on the basis of an alleged absence of insurable
shareholder "an interest in the company's assets sufficient to rationally sustain insurance interest, or an unenforceable gamble.
cover expressed with reference to the underlying value of the assets." The court went on Underwriters should carefully consider the true nature of the interest which a prospective
to find that this interest entitled the insured to recover the loss or diminution in the value insured has at the time of entering into a contract of insurance, and also the relationship
of the insured asset, not loss in value of the shareholder's shares. that interest has to the indemnity provided under the policy, understanding that a court
will not lightly render the bargain unenforceable once a claim has arisen.
The court expressed the view that permitting a claim based on the market value of the
subject matter of the insurance, without requiring proof that the insured has suffered a
patrimonial loss in the same amount, would not prejudice insurers, as they had taken on
the risk of paying on the basis of an actuarially assessed premium related to the
likelihood of the risk eventuating. The fact that, on this basis, there may be multiple
parties with an insurable interest sufficient to sustain insurance cover measured with
reference to the market value of the vessel was also not regarded as inequitable, since
each insured would pay premium calculated with reference to the risk.
The underwriter can obviously acquire no better rights against responsible third parties
than those held by the insured. Thus, if one postulates a situation whereby the
"Buccaneer" sank on account of the actionable negligence of a third party, it is the
erstwhile owner of the "Buccaneer", not the insured, that would enjoy that right of action,
and the underwriter would therefore have no prospects of a successful recovery action.