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4/2 W01/March 2017 Award in General Insurance

Introduction

In this chapter we examine insurable interest. It is not one of the ingredients of a basic contract but it is
the first of the additional elements to create a valid insurance contract.

Key terms

This chapter introduces the following terms and concepts:
Common law Contract Financial value Insurable interest
Legal relationship Subject-matter Timing

A Definition of insurable interest

Insurable interest may be simply defined as:
Insurable interest
4 needed for a valid the legal right to insure arising out of a financial relationship recognised at law, between the insured and the
Chapter subject-matter of insurance.
insurance contract

A1 Features of insurable interest

The following features of insurable interest may help to clarify the definition:
• subject-matter;
• legal relationship; and
• financial value.
We also need to consider some related terms to clarify other aspects of insurable interest:
• insurers’ insurable interest;
• anticipated insurable interest. Reference copy for CII Face to Face Training

Question 4.1
Bearing in mind the definition, do you think you have insurable interest in the following two situations?

• A watch you are holding as security for a loan.
• A car which has been sent to your garage for repair by a mechanic.

A1A Subject-matter

The first feature of insurable interest is the ‘subject-matter’. This term is used in two ways: the subject-
matter of the insurance and the subject-matter of the contract.
Subject-matter of insurance
This refers to the item or event insured. The most obvious examples are cars, houses, valuables or
liability for acts of negligence.
The subject-matter of insurance can be any type of property or any event which may result in a loss of
legal right or the creation of a legal liability. Under a household policy, the subject-matter of insurance
can be the building, furniture and other contents or the creation of liability – for example, when a tile
that should have been secured, falls off a roof and injures a passer-by.
Subject-matter of the contract
The subject-matter of the contract is the financial interest a person has in the subject-matter of the
insurance. This was clearly stated in the case of Castellain v. Preston (1883):
What is it that is insured in a fire policy? Not the bricks and materials used in building the house, but the
interest of the insured in the subject-matter of insurance.
A1B Legal relationship

The relationship between the insured person and the subject-matter of the insurance must be
recognised in law. If there is no legal relationship, there is no insurable interest (for example, a thief can
have no insurable interest in stolen goods, nor can one friend have an insurable interest in another’s
possessions, unless they are in their possession for safekeeping).