Insurance Contracts CP - Law Reform Commission

Lord Eldon formulation, 45 overruled this approach. Wilson J, for the majority, took the view that the
definition of insurable interest was ripe for fundamental re-examination: ―if the application of a rule leads
to harsh justice, the proper course to follow is to examine the rule itself rather than affirm it and attempt to
ameliorate its ill effects on a case-by-case basis.‖ 46 She therefore refused to follow the expedient solution
adopted by her colleague, McIntyre J, of distinguishing Macaura and piercing the corporate veil on the
basis that this was a one-shareholder corporation. 47
2.26 Reviewing Lord Eldon‘s reasoning, which had led Lord Eldon to reject the factual expectation
test, Wilson J cited a passage from Brown and Menezes, Insurance Law in Canada. 48 Commenting on
Macaura, the authors conclude:
―After Macaura, it is no longer possible to claim merely that one would be adversely affected by
the loss; the insured must assert that he owned an interest in the objects destroyed. This
provides the illusion of great certainty. Property law is among the most technical and certain
segments of the law. This certainty is totally illusory because the new formulation makes no
concessions either to the reasons for which insurable interest is a component of insurance law
or for commonplace business transactions .... Assuming that an insurable interest in `things'
must mean property, among the simple questions raised are matters such as how does one
own a direct interest in property which is not in existence at the time of the contract? Can next
season's crops or fluctuating inventory be insured? Are warehousing and other bailee policies
subject to the law as set out in Macaura so as to limit the right to insure to the bailee's liability
to the bailor?‖
2.27 With respect to Lord Eldon's anxiety that the adoption of the factual expectation test would lead
to too much insurance, Wilson J concluded that that fear ―may also be illusory.‖ Insureds are under a
duty to disclose all material circumstances so that insurers can assess the risk and if an insurer cannot
estimate the likelihood of the loss occurring (because, for example, the information is in the hands of third
parties) then it does not have to write the policy. 49
2.28 Wilson J rejected the argument that a broadly conceived notion of insurable interest would lead
to an increase in the willful destruction of insured property stating that the legal interest test provided no
better deterrent against such moral hazard. She considered that insureds who have a legal or equitable
interest would, in fact, have better access to the insured property and therefore more opportunity to
destroy it than those with an interest in the broader sense: ―If Lawrence J's definition of insurable
interest... were adopted, this moral hazard would not be increased. Indeed, the moral hazard may well be
decreased because the subject-matter of the insurance is not usually in [their] possession or control.‖ 50
2.29 Recognising that there might be an incentive to sole shareholders to destroy corporate assets,
if insurance moneys were paid to them free of the company's creditors, Wilson J pointed to company law
remedies and doctrines, including the constructive trust and directors' duties, by which the courts can
make the proceeds of insurance policies held by a shareholder available to the company. By such means
the share-holder is more effectively prevented from benefiting personally from a wrongful act.
2.30 Wilson J‘s analysis reflects a shift in emphasis from Lord Eldon's concerns, which led to a
narrow definition of insurable interest, to a view that recognises the economic and social benefits of
insurance and, therefore, a broader conception of insurable interest. In the modern commercial world
property insurance is generally sought to secure indemnification, and, as Wilson J points out, it is more
45
46
47
48
49
50
See, for example, Guarantee Co of North America v Aqua-Land Exploration Ltd (1965) 54 DLR (2d) 29. See
also Wandlyn Motels Ltd v Commerce General Insurance Co (1970) 12 DLR (3d) 605.
(1987) 34 DLR (4th) 208, at 214.
Ibid, 210. Although not cited by McIntyre J, support for his approach can be found in Durocher v Gevry [1961]
Que QB 283.
C Brown and J Menezes, Insurance Law in Canada (Scarborough, Ontario: Carswell, 1982), at 84.
(1987) 34 DLR 4 th 208, at 218.
Ibid, at 224.
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