Insurance Contracts CP - Law Reform Commission

Further, the assignment of life policies and the existence of the [Traded Endowment Policies
Market] themselves give rise to the same risk of wrongdoing.‖ 85
D
The insurable interest test in Irish Law
2.52 There is no clear statement from the Irish courts on whether a strict legal interest test is to be
applied or whether a factual expectation test, or some variant thereon, will be enough to satisfy an
insurable interest requirement, when this arises. Macaura was considered in Coen v Employers Liability
Insurance Co 86 but no opinion was expressed on the relevant test. The facts of PJ Carrigan Ltd and
Carrigan v Norwich Union Fire Society Ltd 87 closely resemble those contained in Macaura itself, but
Lynch J had no difficulty in finding that because the second plaintiff was the holder of a substantial if not a
beneficial interest in a company that had purchased real property, the second plaintiff had in law an
insurable interest. The factual expectation test is in accordance with recent Irish case law 88 that
recognises legitimate expectation as being an alternative basis for recognising promises as enforceable,
even absent some legal ground for holding the promise to be contractually enforceable.
2.53 There are of course difficulties in using legitimate expectation in this way – an insurance
company is not a public body and it is engaged in commercial, not regulatory activities. But contract law
alone can be adequate. If the contract of insurance was characterised as one in which the insurer has
undertaken to extend cover to a proposer or insured, and the facts reveal that the proposer or insured has
a (legitimate) or factual expectation that the policy will be honoured, it is difficult to see why or how an
insurer should be permitted to resile from the contract. The legitimate or factual expectation should of
course be anchored on some appropriate economic relationship between the proposer or insured and the
subject matter of the insurance contract. Wagering contracts will not suffice; situations where the
proposer or insured has suffered no loss because the property is essentially owned by others will be
outside most insurance contracts, by virtue of the indemnity principle. If an insurer is to insist upon being
able to avoid payment upon a policy because no insurable interest existed at the time of the contract, it
might be appropriate to require the insurer to bargain for such a right in express terms and be under a
duty to seek information from the proposer on the nature of the interest held as a sine qua non to such a
right to resile from a contract. In the absence of such an exchange of information, an insurer should be
regarded as not requiring the proposer to have anything other than a factual expectation in the
transaciton or property in question and that the policy will be honoured by the insurer. As the reasoning
of Wilson J in Constitution Insurance Co of Canada v Kosmonpoulos attests, the insurable interest
requirement is a poor means of advancing the deterrence functions against wagering and moral hazard,
while at the same time having the negative effect of frustrating the development of socially desirable
insurance policies, especially in the areas of income protection, elderly and disability maintenance
insurance, and life policies.
2.54 In A Casebook of Irish Insurance Law, Corrigan and Campbell observe: 89
―By and large, however, it is rare for insurers to raise the issue of insurable interest to avoid
their contractual obligations. It is primarily a technical requirement and, in the absence of
significant substantive reasons for relying on it as a defence, it is unlikely that an insurer would
obtain a sympathetic hearing and so succeed in invoking it before an Irish court.‖
2.55 Buckley 90 citing Keaton, Insurance Law; Basic Text observes that ―it is said that in Macaura the
House of Lords was influenced by unproven allegations of fraud.‖ Ellis and Wiltshire, in Regulation of
85
86
87
88
89
Ibid, p.223.
[1962] IR 314.
High Court, 11 December 1987.
For example, Glencar Exploration plc v Mayo County Council (No2) [2002] 1 IR 84. Promissory estoppel too
may be invoked, but it may be difficult factually to show a representation or reliance in this context: see also
McGrath v Minister for Defence [2010]1 IR 560.
Corrigan and Campbell, A Casebook of Irish Insurance Law, p.91. In Carrigan for example the substantive
defence was that the loss occasioned by fire had been caused by arson involving the insured.
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