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4/4 W01/March 2017 Award in General Insurance

Sample examination question 1
When must insurable interest first exist in order for a private motor insurance policy to be enforceable at law?
a. At the time of the quotation. F
b. On completion of the proposal form. F
c. At inception of the policy. F
d. At the time of a claim. F

Be aware
The English and Scottish Law Commissions published a draft Bill in May 2016 that would reform insurable interest in
the UK by separating it into two categories.
• Life-related insurance: void unless, when entering into a contract, the proposer has an insurable interest in the
individual who is the subject matter of the contract
• Insurance other than life-related insurance: void unless, when entering into a contract, the proposer has:
4 – an insurable interest in the subject matter of the contract; and/or
Chapter This does not apply to marine insurance. As of March 2017, the Law Commission’s report on the consultation of the
– a reasonable prospect of acquiring such an interest during the term of the contract.

draft Bill has not yet been published.

Now we have discussed the principle of insurable interest we can consider the different ways in which
insurable interest can arise.

C Creation of insurable interest

Insurable interest may arise in three ways:
Created by common
law, under contract or
statute • at common law; Reference copy for CII Face to Face Training
• under contract; or
• under statute.

C1 Common law

We all owe duties to each other and have certain rights under common law that give rise to insurable
interest. The most straightforward is ownership as if we own something, we stand to lose financially if it
is lost or damaged. Equally, if we cause someone injury through our negligence, there is a financial
aspect to this that gives us an insurable interest.

C2 Contract

There are situations in which we accept greater liabilities than those imposed by common law. These
occur when we enter into a contract that gives us greater responsibilities. A landlord is normally liable
for the maintenance of the property they own, although they can make the tenant liable under the terms
of the lease.
The imposition of these responsibilities, or potential liabilities, creates an insurable interest.

C3 Statute

There are a few statutes (Acts of Parliament) that impose a particular duty on certain groups of people –
this creates insurable interest. For example, the Settled Land Act 1925 and the Repair of Benefice
Buildings Measure Act 1972 impose duties so where these statutes apply they make tenants responsible
for the upkeep of the buildings they occupy which gives the tenants an insurable interest in the building.