An Evaluation of the Necessity of Insurable Interest in Property Insurance Contracts
| Jurisdiction | United Kingdom |
| Pages | 88-113 |
| Date | 01 October 2020 |
| Published date | 01 October 2020 |
| Author | Katrina Camacho |
| Subject Matter | Civil Law |
Necessity of Inusrance Interest in Property Insurance Contracts88
An Evaluation of the Necessity of Insurable
Interest in Property Insurance Contracts
K C*
I. I
English insurance law is shaped by historical context. Namely, the demands
of the sea-trading industry in the 18th and 19th centuries significantly influenced
the creation and development of property insurance, which is insurance for
pecuniary or economic loss suered by the insured by reason of damage to the
insured property. Property insurance is a type of indemnity insurance, in which the
measure of recovery is actual loss meaning that, as per Brett LJ in Castellain v Preston,
“the assured in case of a loss is to receive full indemnity, but is never to receive
more.”1 In other words, the purpose of property insurance is to transfer the risk
of loss onto the insurer. This is known as the principle of indemnity. Insurance of
this type can be distinguished from non-indemnity insurance such as life insurance,
in which a specific agreed-upon sum of money is paid to the insured upon the
occurrence of a stipulated event regardless of the value of the loss suered.
On top of and complementing the indemnity principle that demands actual
loss is the doctrine of insurable interest that the insured must satisfy in order to
successfully recover under the policy. Non-existent at the inception of the conce pt
of insurance, this requirement was later imposed by the Marine Insurance Act
1745 to distinguish property insurance policies from wagering contracts, to alleviate
anxieties about perceived evils of wagering and the concern that those lacking
interest in the insured property will bring about its destruction, a risk known as
moral hazard. The orthodox approach to the doctrine stipulates that one must
* LLB (University College London), LLB (University of Hong Kong). Special thank you to Professor
John Lowry for his supervision and support in the writing of this paper.
1 [1881–1885] All ER Rep 493.
Cambridge Law Review (2020) Vol V, Issue ii, 88–113
Necessity of Inusrance Interest in Property Insurance Contracts 89
demonstrate a legally enforceable interest in the subject matter of the policy,2 but
this strict legal interest test has been criticized for being out of date and leading
to commercially unfair results. Even further, many observe that the doctrine is
redundant as it serves the same objective as the principle of indemnity in that both
mechanisms determine the insured’s liability,3 and that policies can be achieved by
more specific and coherent rules.4 In response to the view that insurable interest
is an anachronistic doctrine, courts have shown a tendency towards adopting a
broader conception of insurable interest in which a factual expectation short of a
legally enforceable right is sucient to enforce an insurance policy.5 In addition,
in the past twenty years the doctrine has garnered increasing attention from the
English and Scottish Law Commissions in considering whether the doctrine is in
need of reform.
Against this context, this paper will consider to what extent, if at all, insurable
interest should be considered a necessary characteristic of valid property insurance
contracts. First, this paper will explore the emergence and scope of the legal
interest test for insurable interest, followed by a look at how the law has developed
since the doctrine’s inception. This will demonstrate that a recurring theme in
judicial debate about expanding the scope of the doctrine is the recognition of
modern commercial practice and bringing this 18th century doctrine into a 21st
century context. After establishing the current legal position vis-à-vis case law and
reform developments, this paper will closely examine the original policy reasons
for the doctrine’s inception. Specifically, this paper will ask whether these policy
considerations – relating to wagering, moral hazard, and invalid claims – remain
relevant today, and whether the doctrine is eective in satisfying these policies. In
doing so, this paper will engage in a comparison of the two conflicting tests for
determining the presence of insurable interest, that being the legal interest test and
the factual expectation test.
The analysis concludes with the view that the factual expectation test is the
more appropriate measure, as it is less invasive but equally eective in meeting
policy considerations as they manifest in the modern commercial landscape. This
paper, however, goes further to argue that rather than simply adopting the more
flexible factual expectation test, because the policy reasons for a narrow conception
of insurable interest are either no longer applicable or no longer a priority, the
2 Lucena v Craufurd (1806) 2 Bos & PNR 269 [321] (Lord Eldon).
3 See, for example, John Lowry and Philip Rawlings, ‘Rethinking Insurable Interest’,Commercial Law
and Commercial Practice(1st edn, Hart Publishing 2003).
4 Sharo Atmeh, ‘Regulation Not Prohibition: The Comparative Case Against The Insurable Inter-
est Doctrine’ (2011) 32 Northwestern Journal of Inter national Law & Business 93, 94.
5 (n 2) [302] (Lawrence J).
Get this document and AI-powered insights with a free trial of vLex and Vincent AI
Get Started for FreeStart Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
