Insurance Contracts CP - Law Reform Commission

the judges to complicate the law by devising exceptions to the requirement, as has been seen in the
cases on subrogation. Where a party stands to suffer a pecuniary loss it seems illogical to argue that the
desire to insure against such loss is tantamount to wagering. This has been a repeated theme of judicial
comment, in many of the decided cases. The point was made by Mance J:
―... the present policy is not on its face one which the parties made for other than ordinary
business reasons; it does not bear the hallmarks of wagering or the like. If underwriters make a
contract in deliberate terms which covers their assured in respect of a specific situation, a
Court is likely to hesitate before accepting a defence of lack of insurable interest. 81
2.48 Maintaining the insurable interest requirement ignores modern developments such as a
number of statutes permitting third parties to sue insurers directly in certain circumstances,
notwithstanding the absence of insurable interest. One is left to wonder what it adds to the principle of
indemnity under which, in general, the claimant is compensated for the pecuniary loss suffered. It seems
wrong to allow the requirement to be used as a technical defence in circumstances which bear no relation
to its original policy objectives. Where fraud is alleged it should be proved. An insurer always has the
option of refusing to underwrite a risk which is difficult to assess, such as where a shareholder seeks to
insure the assets of a company.
2.49 The continuing insistence on requiring insurable interest—whatever definition is adopted—
harks back to a time when policy issues dictated that this should be a precondition to the validity of the
insurance contract. Once those policy arguments are removed, the justification for the requirement
disappears. 82 Even if, as the Commission has shown, a process of assimilation of the factual expectation
test is underway, the obvious question remains, is there a role for insurable interest?
2.50 The Law Commissions, in Issues Paper No. 4, Insurable Interest criticised the law relating to
contingency insurance, primarily on the basis that the law was both uncertain and difficult to analyse and
was capable of allowing contracts of insurance to be avoided on technical grounds while being capable of
being side-stepped via assignments and other commercial dealings. The Law Commissions also
suggested that moral hazard and gambling in the guise of insurance were not effectively counteracted by
an insurable interest requirement, especially in the light of the Gambling Act 2005 which has all but
abolished the need for an insurable interest in non-marine indemnity insurance in the United Kingdom. In
cases of contingency insurance the same problems of uncertainty of definition and scope of application
arise and have to be addressed.
2.51 In relation to indemnity insurance, the Law Commission‘s main proposal was that there should
be no requirement of insurable interest in such insurance. This has been described as a ―plainly
sensible‖ recommendation by one commentator who has subjected Issues Paper No.4 to a critical
evaluation. 83 On the choice between abolition or the possible reform and retention of an insurable interest
in relation to contingency insurance, the Law Commission favours this latter option on the basis that the
insurable interest in contingency insurance often serves to define insurance vis-à-vis speculative financial
transactions and indeed gambling. But Templeman argues that the insurable interest is ill suited for this
purpose. 84 Similarly, a reluctance to allow persons to effect a life insurance policy in relation to persons
with whom they have no legal or emotional tie
―must stem from a concern that to do so will encourage wrongdoing. But there is really no
evidence that this is so…the deterrents to wrongdoing are the sanctions of the criminal law and
the refusal of the courts to allow a wrong-doer to recover or retain the proceeds of their crime.
81
82
83
84
Cepheus Shipping Corporation v Guardian Royal Exchange Assurance plc (The 'Capricorn') [1995] 1 Lloyd's
Rep 622 at 641, per Mance J.
On this see the comments of the Australian Law Reform Commission, Report No. 20, Insurance Contracts,
above, and Discussion Paper 63, Review of the Marine Insurance Act 1909 para 11.24.
Templeman in Soyer, Reforming Marine and Commercial Insurance Law (Informa Law 2008) Chapter 9. He is
less enamoured of the timing of interest query (p.220 to 221 in Soyer).
Soyer, Reforming Marine and Commercial Insurance Law (Informa Law 2008) Chapter 9.
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