Insurance Contracts CP - Law Reform Commission

interest in respect of the property, or any interest in relation thereto, or liability in respect thereof, of such
a nature that a contemplated peril might directly damnify the insured, is an insurable interest.' In the
codified New York Insurance Law, Art 34 defines insurable interest in property insurance as including 'any
lawful or substantial economic interest in the safety or preservation of property from loss, destruction or
pecuniary damage.'
2.33 In South Africa, the 1774 Act was never enacted or adopted in any way and the South African
judiciary adopted an economic interest test. In Refrigerated Trucking (Pty) Ltd v Zive 60 a Transvaal Court
has provided a broad ecomonic interest test, following earlier South African authorities that appear to
reject a legal or equitable interest approach, the judges upholding a contract even though the claimant
has ―neither a jus in re nor a jus in rem to the thing insured.‖ 61 In Zive the Court held:
―an insurable interest is an economic interest which relates to the risk which a person runs in
respect of a thing which, if damaged or destroyed will cause him to suffer an economic loss or,
in respect of an event, which if it happens will likewise cause him to suffer an economic loss. It
does not matter whether he personally has rights in respect of that article, or whether the event
happens to him personally, or whether the rights are those of someone to whom he stands in
such a relationship that, despite the fact that he has no personal right in respect of the article,
or that the event does not affect him personally, he will nevertheless be worse off if the object
is damaged or destroyed or the event happens.‖
(2) The current British debate on Insurable interest
2.34 In the few cases where insurable interest is directly in issue, 62 it is not surprising that Macaura
continues to represent the orthodox approach. For instance, in Mitchell v Scottish Eagle Insurance Co
Ltd, 63 Mitchell had entered into partnership with his son but had insured the partnership's premises in his
own name. In the Outer House, Lord Prosser, applying the Macaura principle, held that Mitchell lacked an
insurable interest. 64 More directly, in Cowan v Jeffrey Associates, 65 the issue again arose as to the
interest possessed by the director and sole shareholder of a company. Lord Hamilton felt obliged to follow
Macaura, observing that, while it was an English authority and not, therefore, technically binding on him,
nevertheless, it was highly persuasive. In his view the adoption of factual expectancy would require either
legislative intervention or the House of Lords reversing itself. Although these recent Scottish decisions
show the continued importance of the narrow legal interest test, the judiciary has displayed tentative signs
of a willingness to sidestep the force of Macaura. For instance, in Sharp v Sphere Drake Insurance Ltd,
“The Moonacre”, 66 Colman J distinguished Macaura and held that the sole shareholder in a company
possessed an insurable interest in a yacht purchased by the company because the yacht was intended
for his use and a power of attorney had been granted to him in respect of it.
2.35 While the requirement of insurable interest has not been subjected to the sort of rigorous
analysis that led other common law countries to adopt the factual expectation test, the English and
60
61
62
63
64
65
66
1996 2 SA 361(T). The insurable insurable interest position in South African law is uncertain according to
Havenga, ―Liberalising the Requirement of an Insurable Interest in (Life) Insurance‖ (2006) 18 SA Merc LJ.
259, suggesting that South African judges see the central issue as whether the contract is a wager or not. On
moral hazard see Van Niekerk (2009) 21 SA Merc LJ 126.
Littlejohn v Norwich Union Fire Insurance Society 1905 TH 374; See Reinecke and S Van der Merwe, (1984)
101 SALJ 608; Midgley, (1986) SALJ 18.
For the reasons why there have been so few cases, see, J Birds, 'Insurable Interests', in N Palmer and E
McKendrick (eds), Interests in Goods (London: LLP, 1998). The following examination of recent English law
draws heavily from Lowry and Rawlings, Insurance Law – Doctrines and Principles (2009).
1997 SLT 793.
Lord Prosser drew support for his position from the judgment of Lord Sutherland in Arif v Excess Insurance
Group Ltd 1987 SLT 473.
1999 SLT 757.
[1992] 2 Lloyd's Rep 501.
38