Insurance Contracts CP - Law Reform Commission

Nevertheless, it was the policy against wagering underlying the 1745 Act that proved to be the decisive
issue in the leading decision of Lucena v Craufurd. 27 Briefly, the facts were that commissioners had been
given statutory authority to take charge of Dutch ships and cargoes in England. Acting under the orders
of the Admiralty, a Royal Navy ship took several Dutch ships at sea. The commissioners then arranged to
insure the ships while they were on their way to England. They were lost before arrival. While the
provisions of the legislation meant that the commissioners would clearly have had an insurable interest in
the ships if they reached these shores, the issue was whether such an interest existed before their arrival.
The case was first argued before Lord Kenyon CJ and a special jury at the Guildhall in 1799; it was then
appealed through the Court of King's Bench and the Exchequer Chamber, and finally reached the House
of Lords in 1802.
2.15 The overwhelming majority of the judges in the lower courts referred to the second ground
given by Lord Mansfield for his decision in Le Cras as support for their view that the commissioners
possessed an insurable interest, that is, the Crown had previously and invariably obtained and granted
prize rights to the crew. Seizure of the Navy gave the Crown an interest that could produce inchoate
interests in others. Similarly, the majority of the judges called to give their advice to the House of Lords
argued that `a vested interest is not necessary to give the right of insuring. The commissioners had a
contingent interest; and supposing the intentions of the Crown to remain unaltered, nothing stood
between them and the vesting of that contingent interest but the perils insured against'. 28 The judges
summed up their approach:
―The question always is, whether the policy be a gaming contract? If it be no artifice how can it
elude the force of the statute? The case of Le Cras v Hughes was infinitely more likely to
introduce an abuse of the statute than the present case. That has been decided above 20
years; yet what ill consequences have followed? The same may be said of valued policies. In
the case of wagering policies, any number of persons may make insurances on the same ship.
But that is not the case here. If the commissioners could not insure this property, the Dutch
owners could not; and it would be a strange paradox to assert, that these are ships and
cargoes subject to all the perils of the sea in their voyage, and yet none are competent to
insure them.‘ 29
2.16 There were two very strong dissenting voices in the House of Lords. Chambre J held that the
statute appointing the Commissioners afforded no right over the property until arrival in the jurisdiction.
While Lawrence J in his dissenting judgment similarly denied the existence of insurable interest, his
reasoning differed. It is worth considering his opinion at some length because of its enduring influence.
He began by defining the nature of an insurance contract in terms of the protection it afforded the insured
partly not merely against loss resulting in deprivation of property but also against uncertain events which
may lead to some other disadvantage, such as loss of anticipated profit. The risk of such loss, damage or
other prejudice is thereby shifted to the insurer.
2.17 Having spoken generally about the nature of interest and insurance, Lawrence J went on to
formulate what has become known as the factual expectation test:
―To be interested in the preservation of a thing, is to be so circumstanced with respect to it as
to have benefit from its existence, prejudice from its destruction. The property of a thing and
the interest devisable from it may be very different: of the first the price is generally the
measure, but by interest in a thing every benefit and advantage arising out of or depending on
such thing, may be considered as being as comprehended.‖ 30
27
28
29
30
(1802) 3 Bos. & Pul. 75 (Exchequer Chamber) ; (1806) 2 Bos. & Pul. NR 269 (House of Lords).
Before the House of Lords, (1806) 2 Bos. & Pul. NR 269 Le Blanc J, Grose J and Sir James Mansfield CJ took
the same view as the majority in the Exchequer Chamber (they were joined by judges that had already been
of the majority in the lower court – Graham B, Rooke J and Heath J)
(1806) 2 Bos. & Pul. NR 269 at 297
Ibid, at 302-3.
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