Insurance Contracts CP - Law Reform Commission

these kind of cases the owner of the property clearly has an insurable interest suggests that it is through
illegality or public policy considerations – ex turpi causa non oritur actio – that moral hazard dangers are
most effectively addressed. Any reduction in insurable interest requirements will have no effect on moral
hazard considerations which, the Commission believes, can be effectively addressed without the need to
retain any insurable interest requirement. It is also arguable that because public policy and common law
illegality doctrines contain a degree of flexibility – certainly in contrast to s.1 of the 1774 Act which
declares the contract ―to be null and void to all intents and purposes whatsoever‖ – the judiciary is better
able to respond to the individual facts and circumstances of borderline cases. Two Canadian decisions
illustrate this point. 184
(5) Options for reform under the Law Commissions Issues Paper – the regulatory definition
question
2.105 As has been shown, Irish law differs radically from English law insofar as the Irish courts have
ruled that an insurable interest is not a common law requirement and that the 1774 legislation only
applies to contracts of life assurance. In the Insurable Interest Issues Paper the Law Commissions ask
whether an insurable interest is necessary in order to identify and distinguish insurance from other
products which lack an insurable interest. The Law Commissions concluded that the retention of a strict
insurable interest requirement is unnecessary for regulatory purposes.
2.106 The Financial Services and Markets Act 2000, the governing UK legislation, does not define a
contract of insurance but deems contracts listed in a statutory instrument to be contracts of insurance. In
relation to certain types of financial product, regulatory agencies and representative bodies such as the
International Swaps and Derivatives Association have avoided the temptation to review the boundary
between insurance and other financial products on the ground that such a scrutiny could damage market
consensus and undermine confidence in economically significant products, particularly when the market
does not see such products as gambling activities. 185 The Law Commissions concluded that the
Financial Services Authority regard the ―assumption of risk by the [service] provider‖ as the key factor in
identifying insurance for regulatory purposes; this factor however is not the same as the statutory
insurable interest requirement under English law.
2.107 In terms of identifying insurance itself for regulatory proposes, the Law Commissions
emphasise that the three key factors in Scots law and English law concur: they are requirements of
payment, uncertainty and interest. The Law Commissions conclude that both the Scottish and the
English Courts require the insured to have an interest in the subject matter of the contract. However, the
Law Commissions are of the view that the leading cases do not equate such an interest with a pecuniary
loss recognised by law: ―it is an interest in something so that one would be adversely affected if it were to
be lost.‖ 186
2.108 The Law Commissions conclude that ―interest loosely defined does play a role in distinguishing
insurance from other contracts although staturoty insurable interest...does not‖. The Law Commissions
refer to tax guidance and Insurance Premium Tax requiring an insurable interest, which is described as ―a
financial or other loss on the happening of the isured event.‖ This definition looks more like the legitimate
expectation test as canvassed in the Kosmonpoulos decision in Canada. While this test may be required
under fiscal and other statutes for accountancy and tax purposes, it is not to be equated with a statutory
insurable interest: in other words, these important governance and regulatory functions would not be
subverted if a statutory insurable interest requirement were to be removed from the UK statute book.
184
185
186
If the ―moral hazard‖ materialises and public policy prevents a spouse who has murdered his or her spouse
from recovering, should proceeds from the policy to the benefit of the estate of the murdered spouse? Should
public policy allow a windfall benefit to the insurer? See Brissette Estate v Westbury Life Insurance Co [1992]
3 SCR 87 and Oldfield vTransamerica Life Insurance (2002) 210 DLR (4 th ) 1.
For an interesting review of the boundary under UK and Irish law see Devaney, ―Gambling‘s Changing Face –
Do new forms of gambling pose a new regulatory challenge?‖ [2009] CLP 28.
Para 7.20. See the example given in para 7.24.
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