Insurance Contracts CP - Law Reform Commission

CJ expressed the view that it made ―insurance a contract of indemnity‖. 19 For instance, in Lowry v
Bourdieu, 20 the claimants, who had lent money to a ship‘s captain, took out an insurance policy which
would compensate them if the ship failed to arrive. Lord Mansfield held the policy to be a wager and,
therefore, void: ―it was a hedge. But they had no interest; for, if the ship had been lost and the
underwriters had paid, still the plaintiffs would have been entitled to recover the amount of the bond.‖ 21
He went on to observe that:
―There are two sorts of policies of insurance; mercantile and gaming policies. The first sort are
contracts of indemnity, and of indemnity only... The second sort may be the same in form, but
in them there is no contract of indemnity, because there is no interest upon which a loss can
accrue. They are mere games of hazard; like the cast of a die.‖
2.12 Significantly, Lord Mansfield was not denying the enforceability of wagering contracts
generally, but merely acknowledging that the 1745 Act made them unenforceable in relation to marine
adventures by introducing the requirement that the insured demonstrate an insurable interest. 22
2.13 A general definition of insurable interest proved elusive. In Le Cras v Hughes, 23 Lord
Mansfield, perhaps unhelpfully, stated that an interest is necessary, but no particular kind of interest is
required. He did go on to stress, however, that it was not necessary to possess a legal interest in the
insured property. The issue in this case was whether the crews of a Royal Navy squadron had an
insurable interest in two enemy ships they had seized. Lord Mansfield decided that they had for two
reasons. The first was that the crews had rights vested in them by the Prize Acts which gave them a
sufficient interest to support the insurance. This was uncontroversial, but he went on to justify the
decision on the separate ground that there was a moral certainly that the crew would acquire rights over
the seized vessels:
―[w]herever a capture has been made, since the Revolution, by sea or land, the Crown has
made a grant [of the prize ships]: there is no instance to the contrary.‖ 24
2.14 The late 18 th century case law on insurance contracts not covered by the 1745 Act seems
principally to have been driven by the concept that agreements should be enforced rather than be
defeated by the anxiety over wagering. 25 The view was taken that insurance should be encouraged
because it played a key role in commerce by enabling people with little capital to engage in business by
reducing their exposure to risk and ruin. As Marshall observed in his textbook of 1802: 'insurances are
made for the encouragement of trade'. 26 This emphasised the importance of focusing on the social and
commercial benefits of insurance rather than on the restrictions imposed by legislation on wagering.
safety or preservation of the subject-matter insured, or a bona fide expectation of acquiring such an interest,‖
the contract is deemed to be a contract of gambling on loss by maritime perils, and the person effecting it is
guilty of an offence, and must forfeit to the State any money he or she may receive under the contract.
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Le Cras v Hughes (1782) 3 Doug 79, at 86. See also, Moran, Galloway & Co v Uzielli [1905] 2 KB 555 at 563,
per Walton J.
(1780) 2 Doug 468. On Lord Mansfield‘s dislike of wagers and case-law that he was involved in see Swain,
Da Costa v Jones in Mitchell and Mitchell, Landmark Cases in the Law of Contract (Hart, 2008).
Ibid, at 470. See also Moran, Galloway & Co v Uzielli [1905] 2 KB 555.
(1780) 2 Doug 468 at 470. It is worth noting here that this did not eradicate the practice of parties entering
into what are known as PPI (Policy Proof of Interest) contracts: the insurers do not raise the issue of the
insurable interest as a defence to a claim, although if the policy is the subject of litigation over another issue
the court will refuse to enforce it. See further, Gedge v Royal Exchange Assurance Co [1900] 2 QB 214.
(1782) 3 Doug 81.
Ibid at 86. See also Boehm v Bell (1799) 8 TR 154.
This was in spite of the efforts of judges such as Buller J in Atherfold v Beard (1788) 2 TR 610 and Good v
Elliott (1790) 3 TR 693.
S Marshall, A Treatise on the Law of Insurance (1802) pp 99-100.
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