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Chapter 4 Insurable interest 4/5

D Application of insurable interest

Now we understand of the principles of insurable interest and how it may arise, let us consider its
application to property and liability insurance contracts.

D1 Property insurance

This is probably the easiest type of insurable interest to identify. It generally arises out of ownership,
where the policyholder is the owner of the subject-matter. There are also instances where insurable
interest arises when the policyholder is not the full owner of the subject-matter, for example:

Part or joint owners
A person who is a joint or part owner of certain property has an insurable interest up to the limit of their
financial interest. However, as they are considered a trustee for any money that may be paid in the event
of a claim, which may exceed their actual interest, a joint or part owner can insure the property for its
full value.
Agents Chapter
Where a principal has insurable interest, their agent can insure on their behalf.

Bailees 4
Where someone holds property on a temporary basis on behalf of the legal owner, they are a bailee.
They have an insurable interest in the property, since if it is damaged or stolen they may have to replace
it. Examples of bailees include shoe repairers and garage owners.
Tenants
When someone is a tenant of a property, they are not the owner of it but have an insurable interest in it.
This is because in the event of damage to the property, the tenant may be liable for the cost of repairs.
Bailees’ and tenants’ interests are in respect of possible liability.

Shareholders in a limited company do not have an insurable interest in the company’s property. Their
interest in the company is limited to the value of the shares that they own and does not extend to the
physical property owned by the company. Reference copy for CII Face to Face Training
Question 4.2

What do you think is the extent of insurable interest of:
• a mortgage lender in the borrower’s property?
• a joint owner of an apartment?

D2 Liability insurance

At common law a person has insurable interest to the extent of any potential legal liability to pay
damages and other costs awarded by a court.

Our definition of subject-matter included not only loss and damage but also the potential creation of a
legal liability. You will recall that a potential liability and costs are capable of being insured.