Insurance Contracts CP - Law Reform Commission

2.23 In the non-marine context, the issue was settled by the House of Lords in Macaura v Northern
Assurance Co Ltd 37 . In this case, Macaura was the only substantial shareholder in a company to which he
had sold timber on credit. He insured the timber in his own name and when it was destroyed by fire
sought to claim against the policies. An initial allegation that Macaura's claim was fraudulent and
dishonest was dismissed by an arbitrator and, apart from a brief statement to that effect, this was not
mentioned in the House of Lords. The issue before the court was whether Macaura had an insurable
interest in the timber owned by the company. Counsel for Macaura, drawing on Lawrence J, argued that
Macaura's insurable interest derived from his being the only shareholder. It was also argued that a
separate insurable interest arose from his being the only substantial creditor of the company whose only
substantial asset from which the debts could be paid was the timber. On both grounds, it was claimed,
Macaura was bound to benefit by the preservation of the timber and suffer by its destruction. All five of
their Lordships rejected this argument 38 ruling that Macaura had no insurable interest. In giving the
leading speech, Lord Buckmaster cited, with approval, Walton J‘s reasoning in Moran, Galloway & Co v
Uzielli, 39 in which he had said: ―in so far as the plaintiffs' claim depends upon the fact that they were
ordinary unsecured creditors... I am satisfied it must fail.‖ 40 Lord Buckmaster, therefore, dismissed the
idea that a creditor had an insurable interest in the assets of a debtor. His principal objection to Macaura‘s
contention, however, turned on his status and interest in the company as shareholder. If Macaura‘s
argument was accepted, then, in Lord Buckmaster's view, each shareholder in every company would
have an insurable interest in corporate assets and the extent of that interest `could only be measured by
determining the extent to which his share in the ultimate distribution would be diminished by the loss of
the asset — a calculation almost impossible to make.‘ 41 Lord Buckmaster then explicitly attacked
Lawrence J‘s view in Lucena v Craufurd by saying, ―I find ... difficulty in understanding how a moral
certainty can be so defined as to render it an essential part of a definite legal proposition.‖ 42
C
Modern development of insurance interest and factual expectation in other jurisdictions
2.24 In Canada, Australia, the USA and South Africa a pragmatic approach has been adopted in
response to the perceived social and commercial benefits which widespread insurance offers. The
reasoning in Macaura has been rejected principally on the basis that an overly technical determination of
the insurable interest requirement has the potential to defeat the reasonable commercial expectations of
the parties. 43 In its place the courts have substituted factual expectancy as the determinative test.
(1) Canada, Australia, the USA and South Africa
2.25 Thus, in Constitution Insurance Company of Canada v Kosmopoulos, 44 the facts of which
closely resemble Macaura, the Supreme Court of Canada, which had previously followed the restrictive
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[1925] AC 619. Nicholl, in Insurable Interest: As Intended [2008] JBL 432 argues that Lucena v Craufurd is
misunderstood, later courts failing to distinguish between the subject matter of the insurance contract with the
asset that has been lost or damaged. This article contains an interesting analysis of Wilson v Jones (1866-7)
LR 2 Ex 139, stressing the importance of construing the policy so as to identify the insured‘s interest.
Lords Buckmaster, Atkinson, Sumner, Wrenbury and Phillimore.
[1905] 2 KB 555.
Ibid, at 562.
[1925] AC 619 at 627.
[1925] AC 619 at 627.
See further, A J Campbell, 'Some Aspects of Insurable Interest' (1949) 27 Can Bar Rev 1; D Galbraith, 'An
unmeritorious defence—The requirement of insurable interest in the law of marine insurance and related
matters' [1993] Insurance 177; RA Hasson, 'Reform of the Law Relating to Insurable Interest in Property—
Some Thoughts on Chadwick v Gibraltar General Insurance' (1983-84) 8 Can Bus LJ 114.
(1987) 34 DLR (4th) 208. Noted by L Stuesser (1987-8) 13 Can Bus LJ 227.
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