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A

Feasey v Sun Life Assurance Co of Canada.

[2003] EWCA Civ 885

Court of Appeal (Civil Division).

Ward, Waller and Dyson L JJ.
Judgment delivered 26 June 2003.
Insurance - Reinsurance - Personal accident business - Liabilities of P & I club
members for personal injury or death of person on or in relation to vessels
entered with the club - Personal accident and illness master lineslip policy
paying fixed benefits in respect of death and permanent and temporary total
disability of persons engaged on board vessels entered with club - Whether P &
I club had insurable interest to protect by master lineslip - Whether fixed benefits
payable under master lineslip over-compensated club - Whether termination of
authority to commit one reinsurer meant that other was committed for whole risk
- Life Assurance Act 1774, s. 1, 3.

This was an appeal from the judgment of Langley J ([2002] EWHC 868
(Comm); [2003] 2 CLC 936) deciding that Steamship Mutual Underwriting
Association (Bermuda) Ltd (Steamship) had an insurable interest in relation to
a contract of insurance made between it and syndicate 957, that in relation to the
reinsurance of syndicate 957 by Sun Life Assurance Co of Canada (Sun Life)
and Phoenix Home Life Mutual Insurance Co (Phoenix) there was no nondisclosure or misrepresentation entitling Sun Life and Phoenix to avoid the
reinsurance policy and that in relation to one period of the reinsurance Centaur
Underwriting Management Ltd (Centaur) had purported to write the same for
Sun Life and Phoenix 50:50 when it had no authority to write for Phoenix.
Syndicate 957 argued that Centaur had written the same 100 per cent for Sun
Life but the judge ruled against syndicate 957 on that issue.
Steamship insured the liabilities of its members for personal injury or death.
In about June 1995, rather than entering into a conventional reinsurance with
syndicate 957, Steamship and the syndicate entered into a personal accident and
illness master lineslip policy. The aim was to cover the liability of Steamship to
its members. Under the master lineslip the syndicate agreed to pay fixed benefits
to Steamship in respect of bodily injury and/or illness sustained by a person (an
original person) who was engaged in any capacity on board a vessel or offshore
rig entered by a member with Steamship. That master lineslip was renewed from
time to time. In particular, in about May 1998, it was renewed in respect of losses
occurring on declarations attaching during three consecutive periods of 12
months from 20 February 1997 and, later, in respect of losses occurring on
declarations attaching during the period 20 February 2000 to 20 February 2001.

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Syndicate 957 reinsured its liability under the master lineslip. That
reinsurance for the years February 1998 to February 2000 was 50 per cent with
Sun Life and 50 per cent with Phoenix. That reinsurance was negotiated by
brokers acting for syndicate 957 and Centaur who were authorised at that stage
to write for those two companies in the above proportions. On 1 October 1998
Centaurs authority to write new business for Phoenix ceased. The brokers
negotiated an extension of reinsurance with Centaur for a further year on 29
October 1998. It was that negotiation which gave rise to the authority point and
the question whether Centaur was agreeing to take 100 per cent for Sun Life.
The reinsurers sought to avoid the reinsurance for alleged non-disclosure and
misrepresentation and Sun Life took the point that Steamship had no insurable
interest in the lives and wellbeing of the original persons, when entering into the
master lineslip for the three years from February 1997 and after, so that the
insurance was illegal by virtue of s. 1 of the Life Assurance Act 1774.
Alternatively Sun Life asserted that Steamship was seeking to claim more than
the value of any insurable interest it had and was not permitted to do so by
reason of s. 3 of the 1774 Act.
The judge dismissed the misrepresentation and non-disclosure claims.
Steamship and the syndicate honestly believed when the relevant covers were
agreed that the level of benefits had been set so as to eliminate any possibility of
over-compensation for Steamship. Sun Life and Phoenix failed to establish the
representations on which they relied, to the effect that the fixed benefits in the
master lineslip constituted a realistic estimate made by the syndicate of the
average sums likely to be properly paid out by Steamship under the clubs rules
for the 1998 and following years, and that Steamships risk had been carefully
and professionally appraised by the underwriter. It also had not been shown
that that even if either representation relied upon was made it or they induced
the reinsurers to write the business. The master lineslip was not in breach of s.1
of the 1774 Act since Steamship had a real and significant contingent economic
interest in the lives and well being of persons on vessels entered by members with
it. There was no principle or reason why the law should strike down the master
lineslip as unlawful when it was accepted that in no sense did it amount to
gaming or wagering, was not suggested to be contrary to any other policy
consideration and was not commercially objectionable. Since there was no
gaming or wagering s. 3 of the 1774 Act had no application. The reinsurers
appealed on the insurable interest issue and the syndicate appealed on the
authority issue.
Held, dismissing the appeal on both issues:
1. (Per Waller LJ) A sufficient interest was not demonstrated by showing that
the policy was not a wagering contract. The question whether the contract of

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insurance could be correctly described as gaming or wagering was a material

factor. But the starting point was the question whether there was an interest not
whether the contract was one of gaming or wagering and the critical question
was not whether the policy was a wagering contract but whether the disputed
policy was an insurance made on the life or lives of any person or persons or on
any other event or events whatsoever wherein Steamship had no interest. (Dalby
v India and London Life Assurance Co (1854) 15 CB 365 considered.)
2. (Per Waller LJ) Following the amendment to s. 2 of the 1774 Act by s. 50 of
the Insurance Companies Amendment Act 1973, Parliament must be taken not
to have intended that s. 1 of the 1774 Act would make null and void an insurance
on lives of persons unidentified as at the date of the policy, but within a
description such as that given for original persons.
3. (Per Waller LJ) In a life policy the date at which the insurable interest must
exist was the date of the taking out of the policy. Furthermore, that was the date
for valuing the insurable interest. The value of an interest at the time of taking
out the policy was assessed on the maximum pecuniary loss that the assured
could suffer on the death of the life assured. (Dalby v India and London Life
Assurance Co (1854) 15 CB 365 and Hebdon v West (1863) 3 B & S 579
considered.)
4. (Per Waller LJ) The following principles could be derived from the
authorities: (i) It was from the terms of the policy that the subject of the
insurance must be ascertained. (ii) It was from all the surrounding
circumstances that the nature of an insureds insurable interest must discovered.
(iii) There was no hard and fast rule that because the nature of an insurable
interest related to a liability to compensate for loss, that insurable interest could
only be covered by a liability policy rather than a policy insuring property or life.
(iv) The question whether a policy embraced the insurable interest intended to
be recovered was a question of construction. The subject or terms of the policy
might be so specific as to force a court to hold that the policy failed to cover the
insurable interest, but a court would be reluctant so to hold. (v) It was not a
requirement of property insurance that the insured must have a legal or
equitable interest in the property as those terms were normally understood. It
was sufficient for a sub-contractor to have a contract that related to the property
and a potential liability for damage to the property to have an insurable interest
in the property. It was sufficient under s. 5 of the Marine Insurance Act 1906 for
a person interested in a marine adventure to stand in a legal or equitable
relation to the adventure. That was intended to be a broad concept. (vi) In a
policy on life or lives the court should be searching for the same broad concept.
It might be that on an insurance of a specific identified life, it would be difficult
to establish a legal or equitable relation without a pecuniary liability recognised
by law arising on the death of that particular person. There was however no

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authority which dealt with a policy on many lives and over a substantial period
and where it could be seen that a pecuniary liability would arise by reference to
those lives and the intention was to cover that legal liability. (vii) The interest in
policies falling within s. 1 of the 1774 Act must exist at the time of entry into the
policy, and be capable of pecuniary evaluation at that time. Applying those
principles it was not an abuse of language to say that Steamship had an insurable
interest in the lives and wellbeing of original persons as defined by the policy and
no reason not to construe the subject of the policy as embracing that insurable
interest. Accordingly the judge was right that the policy was not in violation of s.
1 of the 1774 Act. (Per Dyson LJ) Authority did not compel the conclusion that,
as a matter of law, an insurable interest in a contingency based on an insureds
potential liability for that contingency could not be covered by a policy on life
properly framed so as to embrace that insurable interest and on that basis the
decision of the judge on the insurable interest issue should be upheld. (Per Ward
LJ dissenting) Original person meant anyone who suffered a bodily injury on
board or in relation to an owners vessel whether or not the owner was liable in
negligence to compensate him. The insurer could have no interest in the life of
such a stranger. A double contingency death/bodily injury and potential
liability therefor was the subject matter of the insurance as described in the
policy and Steamship did not have an insurable interest in it. The legal
relationship which could give rise to an insurable interest was the club rule that
the club would indemnify the member in respect of compensation paid by the
member in relation to that death or injury. But that depended upon the
members liability to compensate being established. Until that liability was
established, the death or injury per se created no more than an expectation of
disadvantage and, on the authorities, that was not enough to create an insurable
interest.
5. (Per Waller LJ) The judge was right that the reinsurers had not shown that
Steamship was seeking to recover an amount in excess of the value of the interest
as at the date of the policy in breach of s. 3 of the 1774 Act.
6. The judge reached the right conclusion on the authority issue. It was
fallacious to argue that because Centaur no longer had authority from Phoenix
it must have committed Sun Life to the whole of the risk. It was not sufficient to
establish that Centaur had such authority (which it did). It was necessary to see
whether in fact it exercised that authority and Centaur did not purport to bind
Sun Life to 100 per cent cover.

The following cases were referred to in the judgments:

Anderson v Morice (1875) 10 CP 609; (1876) 1 App Cas 713.
Baker v Black Sea and Baltic General Insurance Co Ltd [1996] LRLR 353 (CA).
Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484 (QBD).

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Cepheus Shipping Corp v Guardian Royal Exchange Assurance plc (The

Capricorn) [1995] 1 Ll Rep 622.
Commonwealth Construction Co Ltd v Imperial Oil Ltd (1976) 69 DLR (3rd)
558.
Constitution Insurance Co of Canada v Kosmopoulos (1987) 34 DLR (4th) 208.
Co-operative Retail Services Ltd v Taylor Young Partnership (2000) 74 Con LR
12 (CA); [2002] UKHL 17; [2003] 1 CLC 75.
Dalby v India and London Life Assurance Co (1854) 15 CB 365; 139 ER 465.
Deepak Fertilisers and Petrochemicals Corp Ltd v ICI Chemicals and Polymers
Ltd [1999] l Ll Rep 387.
Glengate-KG Properties Ltd v Norwich Union Fire Insurance Society Ltd [1996]
CLC 676.
Godsall v Boldero (1807) 9 East 72; 103 ER 500.
Good v Elliott (1790) 3 TR 693; 100 ER 808.
Griffiths v Fleming [1909] 1 KB 805.
Halford v Kymer (1830) 10 B & C 724; 109 ER 619.
Hambro v Burnand [1904] 2 KB 10.
Harse v Pearl Life Assurance Co [1903] 2 KB 92 (KBD).
Hebdon v West (1863) 3 B & S 579; 122 ER 218.
Hopewell Project Management Ltd v Ewbank Preece Ltd [1998] 1 Ll Rep 448.
Law v London Indisputable Life Policy Co (1855) 1 K & J 223; 69 ER 439.
Lowry v Bourdieu (1780) 2 Dougl 468; 99 ER 299.
Lucena v Craufurd (1806) 2 Bos & Pul (NR) 269; 127 ER 630.
Macaura v Northern Assurance Co Ltd [1925] AC 619.
Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211.
National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Ll Rep 582.
Paterson v Powell (1832) 9 Bing 320; 131 ER 635.
Petrofina (UK) Ltd v Magnaload Ltd [1983] 2 Ll Rep 91; [1984] QB 127.
Sharp v Sphere Drake Insurance (The Moonacre) [1992] 2 Ll Rep 501.
Simcock v Scottish Imperial Insurance Co (1902) 10 SLT 286.
Stock v Inglis (1884) 12 QBD 564.
Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1991] 2 Ll Rep 288
(QBD).
Wilson v Jones (1867) LR 2 Ex 139.
Julian Flaux QC and David Lord (instructed by Lovells) for the syndicate.

Dominic Kendrick QC and Simon Kerr (instructed by Clifford Chance) for Sun
Life and Phoenix.
Anthony Boswood QC and Richard Handyside (instructed by Richards Butler) for
Steamship.

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JUDGMENT

Waller LJ:
1. This is an appeal from the judgment of Langley J given on 17 May 2002 ([2002]
EWHC 868 (Comm); [2003] 2 CLC 936). Only certain points are live on the appeal.
By his judgment Langley J decided that Steamship Mutual Underwriting Association
(Bermuda) Limited (Steamship) had an insurable interest in relation to a contract of
insurance made between it and syndicate 957. He further found that in relation to the
reinsurance of Syndicate 957 by Sun Life Assurance Company of Canada (Sun Life)
and Phoenix Home Life Mutual Insurance Company (Phoenix) there was no nondisclosure or misrepresentation entitling Sun Life and Phoenix to avoid the
reinsurance policy. He further found however that in relation to one period of the
reinsurance Centaur Underwriting Management Limited (Centaur) had purported to
write the same for Sun Life and Phoenix 50:50 when they had no authority to write
for Phoenix. Syndicate 957 argued that Centaur had written the same 100% for Sun
Life but the judge ruled against Syndicate 957 on that issue.
2. The non-disclosure and misrepresentation aspects have been abandoned on the
appeal. The point which has taken up the greatest proportion of time on the appeal is
the insurable interest point. A much shorter time was spent dealing with the authority
point. That point is dealt with in the judgment of Dyson LJ with which I agree. I will
deal with the insurable interest point.

How does the insurable interest point arise?

3. Steamship insured the liabilities of their members for personal injury or death. In
about June 1995, rather than entering into a conventional reinsurance with Syndicate
957, Steamship and Syndicate 957 entered into a Personal Accident and Illness
Master Lineslip Policy. The aim was to cover the liability of Steamship to its
members. Under the Master Lineslip the syndicate agreed to pay fixed benefits to
Steamship in respect of bodily injury and/or illness sustained by a person (an original
person) who was engaged in any capacity on board a vessel or offshore rig, entered
by a member with Steamship. That Master Lineslip was renewed from time to time.
In particular, in about May 1998, it was renewed in respect of losses occurring on
declarations attaching during three consecutive periods of 12 months from 20
February 1997 and, later, in respect of losses occurring on declarations attaching
during the period 20 February 2000 to 20 February 2001.
4. Syndicate 957 reinsured its liability under the Master Lineslip. That reinsurance
for the years February 1998 to February 2000, was 50% with Sun Life and 50% with
Phoenix. That reinsurance was negotiated by brokers acting for Syndicate 957 and
Centaur who were authorised at this stage to write for those two companies in the
above proportions. On 1 October 1998 Centaurs authority to write new business for

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Phoenix ceased. The brokers negotiated an extension of reinsurance with Centaur for
a further year on 29 October 1998. It is that negotiation which gives rise to the
authority point and the question whether Centaur was agreeing to take 100% for Sun
Life.
5. It is Sun Life who have taken the point that Steamship had no insurable interest
in the lives and wellbeing of the original persons, when entering into the Master
Lineslip for the three years from February 1997 and after. They contend that the
insurance is illegal by virtue of section 1 of the Life Assurance Act 1774. In the
alternative Sun Life assert that Steamship are seeking to claim more than the value of
any insurable interests they had, and are not entitled to do so by virtue of section 3 of
the same Act.
6. It is not attractive to contemplate that where insurers have carefully crafted a
policy which was intended to be enforceable by Steamship, a point on insurable
interest could arise. As quoted in The Law of Insurance Contracts (4th edition) by
Professor Malcolm Clarke there is an observation of Mance J in The Capricorn
[1995] 1 Ll Rep 622 at 641 that if insurers,
make a contract in deliberate terms which covers their assured in respect of a
specific situation, a court is likely to hesitate before accepting a defence of lack
of insurable interest.

7. Mr Kendrick QC, who argued the appeal with great skill on behalf of Sun Life,
accepts that the courts attitude is as stated by Brett MR in Stock v Inglis (1884) 12
QBD 564 at 571 where he said:
F

In my opinion it is the duty of a court always to lean in favour of an insurable

interest, if possible, for it seems to me that after underwriters have received the
premium, the objection that there was no insurable interest is often, as nearly as
possible, a technical objection, and one which has no real merit, certainly not as
between the assured and the insurer. Of course we must not assume facts which
do not exist, nor stretch the law beyond its proper limits, but we ought, I think,
to consider the question with a mind, if the facts and the law will allow it, to find
in favour of an insurable interest.
8. Be all that as it may, there is no doubt that the argument on behalf of Sun Life is
a formidable one and cannot by any means simply be brushed aside.

The facts
9. The facts are set out in detail in Langley Js judgment and there is no appeal
therefrom. The important matters of background I summarise from that judgment as
follows. In 1994 Syndicate 957 had reinsured Steamship (and other clubs) on a bodily

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injury carve out and mixed indemnity and fixed benefit basis. It seems that in
September 1994 Lloyds announced changes to its risk codes for the 1995 year of
accounts. From January 1995 Accident and Health policies could only be classified as
Personal Accident Insurance if payments were on a fixed benefit basis. Liability or
contingent cover was treated as long tail business for reserving purposes. Personal
Accident cover was treated as short tail and so did not require provision of substantial
reserves to be held for long periods.
10. Mr Cackett the underwriter for Syndicate 957 wanted to preserve the substantial
1994 premium income received by the Syndicate from Steamship if he properly
could, but also to maintain the PA classification. The PA concept was Mr Cacketts
creation. The basic idea was to provide a fixed level of benefit payable on proof of
the fact of death, PTD (Permanent Total Disability) or TTD (Temporary Total
Disability) of an Original Person with medical expenses payable in addition. The
level of benefits could not and would not track with any precision the amount of the
actual liability of the member of Steamship or Steamship in respect of the death, PTD
or TTD relating to the individual original person. But, it was intended that overall
Steamships recovery under the Master Lineslip should track as closely as possible
Steamships overall exposure.
11. Langley J demonstrated that in the drafting of the original wording there was a
tension between attempting to keep the Master Lineslip within the relevant Lloyds
code, and providing the cover which Steamship desired. It is doubtful to what extent
those drafting points can be relevant to the actual construction of the policy but, as
Langley J pointed out, it was in that context that the word liability in respect of
claims as against Steamship became obligations of Steamship, wording to which I
will have to return. In addition, there was evidently in the draft at one time a provision
which provided for adjustment and expressly for Steamship to make repayment
where it transpired that fixed benefits exceeded the clubs liability to a member, but
that provision was not maintained.
12. There was a dispute at the trial whether Steamship were intending to cover legal
expenses incurred by virtue of the fixed benefits received. The judge found that the
setting of the benefit levels was intended to contribute to Steamships exposure
including legal costs.
13. The first lineslip providing this new form of cover was effected for the period
20 February 1995 to 20 February 1996. The terms and wording were finally agreed
between Syndicate 957 and Steamship in June 1995. The Master Lineslip had been
signed earlier for 100% by Mr Cackett on behalf of Syndicate 957 naming Lloyd
Thompson as the lineslip holder.
14. The first declaration under the Master Lineslip was accepted on 16 June 1995.
It named Steamship as the insured. It was to pay Steamship benefits calculated in

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accordance with the schedule of compensation contained in the wording for death,
PTD or TTD (and medical expenses in relation to TTD only) as defined in the
wording. The policy limits were as specified in the schedule of compensation but also
subject to a maximum of $1m for any one event and in a maximum amount
recoverable in all equivalent to 250% of the finally adjusted gross premium payable.
There was an aggregate deductible of 6.6% of Steamships net premium income or
$1.5m whichever was the greater. A deposit premium of $5.5m was payable in 6 equal
quarterly instalments starting on 20 May 1995 and was adjustable quarterly at 32.5%
of Steamships net premium income received in respect of member entries during the
policy period.
The wording
15. The Policy Wording was scratched in June 1995 by Syndicate 957 and
Steamship. Essentially the same wording was used in all years. I will indicate
variations. The insuring clause was expressed in terms that if an Original Person
sustains Bodily Injury and/or Illness we will pay to the Insured in accordance with the
terms and conditions of this Insurance and according to the Schedule of
Compensation after the claim has been substantiated under this Insurance.
16. Clause 1 contained a number of relevant definitions. The Insured was
Steamship.

17. Entered Vessel was defined as:

a vessel, offshore rig and/or similar interest to be agreed which has been
entered by a Member for any of the risks enumerated herein .
F

18. Member was defined as:

an owner and/or other person interested in any Entered Vessel to whom the
Insured has obligations under its Rules and/or terms of entry in respect of the
Bodily Injury and/or illness suffered by an Original Person.

19. Original Person was defined as:

(i) any person while engaged during the Policy Period in any capacity on
board or in relation to an Entered Vessel as part of her complement, but shall
include any person who is engaged by a Member during the Policy Period at the
time of the Accident and is seconded to another vessel pursuant to a
contract entered into by a Member and/or (ii) other persons while engaged during
the Policy Period in any capacity on board or in relation to any Entered Vessel.
20. PTD was defined as Bodily Injury and/or Illness which actually prevents the
Original Person from attending to his or her usual business or occupation and/or
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assuming the same work activities as those which he or she was employed to perform
immediately prior to the Accident or the manifestation of the Illness and which lasts
twelve months and at the expiry of that period appears to be such that the Original
Person will not thereafter be able to resume attending to such usual business or
occupation and/or assume such same work activities.
21. TTD was defined as Bodily Injury or Illness which actually prevents the
Original Person from attending to his or her usual business or occupation and/or
assuming the same work activities as those which he or she was employed to perform
immediately prior to the Accident or manifestation of the Illness.
22. The Wording contained (Clause 2) a limited number of exclusions such as death
or disablement arising out of war (and the like) and mental or psychiatric illness.
23. Clause 3 provided for claims notification and settlement of benefits.
Notification of claims by Steamship had to be accompanied by reasonable
documentary proof of the death or disablement of the Original Person, the date of the
accident and inward claim, details of the circumstances of the accident and injury and,
if the claim was for TTD, an estimate of the period during which the disablement
appeared likely to continue and details of any medical expenses paid by Steamship,
or, if the claim was for PTD, confirmation that disablement appeared likely to
continue for not less than 12 months. In the event of death or PTD Syndicate 957
agreed on receipt of such notification to pay Steamship the Capital Sum specified in
the Schedule of Compensation. In the case of TTD, also on receipt of such
notification, Syndicate 957 agreed to
pay the weekly benefit as specified in the Schedule of Compensation for the
period of Disablement together with any Medical Expenses. Should the period of
Temporary Total Disablement (either as estimated by the Insured or as actually
suffered by the Original Person) exceed 152 weeks and should the Insured
confirm to Underwriters that it appears that the Original Person will not
thereafter be able to resume attending to his or her usual business or occupation
and/or to assume the same work activities . Underwriters will pay to the
Insured the Capital Sum Insured as if the Original Person had suffered Permanent
Total Disablement less any benefit (including Medical Expenses) already paid
.
24. Payment of the benefits was to be made no later than 30 days after submission
of bordereaux (Clause 4); claims notified 24 months after expiry of the Policy Period
were not covered (Clause 5).
25. In place of the adjustment clause referred to in paragraph 10 above was Clause
6 entitled Alteration in Circumstances reading:

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Should the Insured at any time become aware that any confirmation or
information provided to Underwriters in connection with a claim hereunder is
not, or is no longer, accurate or applicable, the Insured shall immediately inform
Underwriters and at the same time return to Underwriters any amount by which
all payments made by Underwriters hereunder exceed the amount (if any) which
would actually be payable hereunder in accordance with the accurate or
applicable confirmation or information.
26. The Schedule of Compensation (Clause 9) in the original wording provided for
different levels of compensation for three geographical areas: the highest level where
the Entered Vessel or Member was registered or had a place of business or conducted
operations in North America, half those levels for Europe, Japan or the Asean group
of trading nations, and half again for anywhere else. The North American levels were
US $1m for death and PTD and $4000 a week for a maximum of 152 weeks for TTD.
The maximum limits (also set out in Clause 9) were $1m in respect of any one
Original Person and $1m in all for any claim or claims caused by the same occurrence
or series of occurrences arising out of the same event. In subsequent wordings (where
appropriate) the Schedule of Compensation referred to as declared or was otherwise
changed to reflect the terms agreed for the relevant period of cover.
27. The judge made the following comments. There is challenge to only one of
those comments and I will set them out in full:

(i) As I have already said, I find that Mr Cackett was responsible for setting the
benefit levels.

(ii) Although Ince & Co (and Mr Cackett) were concerned (because of the Audit
Codes) to avoid references to Steamships own liability to the Clubs Members
and specifically removed the adjustment provisions which would have resulted in
re-payment of over-recoveries it is I think clear that both Steamship and
Syndicate 957 intended that claims would only be sustainable under the cover in
cases in which Steamship was itself liable to indemnify the Member concerned
in respect of the accident and injury to the Original Person in question. Mr
Boswood QC submits that on analysis the wording in any event requires as much;
Mr Kendrick submits it does not. On any view Mr Kendrick is right in submitting
that such a requirement (if any) can only be found in the depths of the definitions:
see (iii).
(iii) Mr Boswoods submission is as follows. Syndicate 957 agreed to make the
fixed benefit payments if an Original Person suffered injury. Original Persons
are persons engaged on an Entered Vessel. An Entered Vessel is one entered by
a Member of the Club with Steamship during the relevant period in respect of
any of the risks enumerated in the wording itself. A Member has to be a person
interested in any Entered Vessel and a person to whom Steamship has

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obligations under its Rules in respect of the Bodily Injury suffered by an

Original Person. That, submits Mr Boswood, has the effect that unless there is a
liability on Steamship to the Member for the injury (which there would not be if,
for example, any damages payable to the Original Person was less than the
members deductible) no recovery could be made or, if made, retained under the
Policy Wording. Mr Kendrick submits that Mr Boswoods submission places
more weight on the word obligations than it can bear. He submits that
Steamship owed obligations under the Clubs Rules to investigate claims. But
I agree with Mr Boswood that the relevant Rule (Rule 28) does not in ordinary
language impose an obligation on Steamship to investigate claims on Members
but bestows a right on Steamship to do so. In my judgment Mr Boswoods
submission on the construction of the Wording is also right and, however
obscurely, reflects what both Mr Cackett and Mr Martin said and I find was
intended.
(iv) The definition of PTD was one of some width. It did not, for example depend
on earning capacity. In the case of rig workers there might be a particular risk that
an otherwise not very serious injury would prevent an Original Person from
resuming arduous duties leading to a PTD payment within the definition. Mr
Cackett was alive to the possibility of a TTD becoming a PTD and indeed the
wording expressly addressed it in Clause 3 (see paragraph 53). The possibility,
however, might well not be manifest for a considerable time as the Clause itself
contemplates the elapse of 152 weeks before a determination might be made.
That is of significance because on the evidence in the event the major if not the
only source of alleged overpayments to Steamship is the number of claims
which started as TTDs but came later to be classified as PTDs.
(v) Mr Cackett had a close involvement in drafting the wording yet nothing in it
or otherwise required Steamship to include or provide figures for paid or incurred
claims by Members on Steamship. The trigger for payment of the benefit was
simply proof of the death or disablement of an Original Person: Clause 3.
(vi) Original Persons were not necessarily identifiable at inception. They
included those who came to work on an Entered Vessel at any time during the
period of the cover.

(vii) There was an aggregate excess and limit (in the event $1.5m and 17.25m
respectively).
28. Mr Kendrick challenges the judges conclusion at (iii). Mr Boswood QC albeit
seeking to uphold the judges construction submits that it makes no material
difference if his submission is not accepted. My view is that the judge was right in
construing the policy wording as he has.

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29. It is important to emphasise that he is not construing the wording in a way

which means that claims are only payable once liability is established. He is
construing the policy as cover for Steamship for the losses that it may incur where
some liability is established. It is right to emphasise that there is no precise
relationship between the payments of benefit and the liabilities of Steamship. Mr
Boswoods argument only suggests that if there is no liability of Steamship i.e. where
the member has no liability to the Original Person or if the liability falls below the
deductible in relation to any claim from an Original Person, fixed benefits would have
to be returned. He does not suggest that in relation to a claim which exceeds the
deductible but falls below the fixed payment there should be any return of the money
paid to Steamship.

30. I do not think that it is critical whether Mr Boswood is right in the above
submission. On any view the wording makes clear that it is intended that there should
be a close relationship between the amount of fixed benefits and Steamships liability
to its members.
D

31. When the first claims came in there followed considerable debate between
Syndicate 957 and Steamship as to whether the fixed benefits were not too
generous. The details are set out in paragraphs 63 to 69 of the judgment of Langley
J. The outcome was that on renewal in February 1996 agreement was reached that the
benefit levels should be $1m and $2,250 from the inception of the 1995/6 cover.

32. On 4 March 1996 the lineslip was again renewed for 1996/7 but for individual
declarations. Falcon was renewed with limits of $500K for death and PTD, and
$1,750 for TTD. Marine Drilling was renewed with limits of $400K and $1,750. The
details appear from paragraph 70 of the judges judgment.
F

Excess of loss
33. Reduction in the maximum death and PTD benefit level from $1m to $500K led
to Steamship taking out excess of loss insurance for losses on members claims which
exceeded the relevant limit. The effect of this excess of loss insurance was that if the
relevant limit in the Master Lineslip was $500K, Steamship would recover that sum
from Syndicate 957 even where the claim by the member was less than $500K, but
where a claim exceeded $500K Steamship obtained 100% of recovery from the
combination of the Master Lineslip and the excess of loss cover. The judge records
finding that Mr Johnston of Steamship was genuinely surprised when it was put to
him in cross-examination that on this basis Steamship could not make a loss but only
a profit on such claims. The judge found that it was not seen in those terms when the
excess loss insurance was taken out.
34. In March 1996 Mr Cackett gave notice of his intention to leave Syndicate 957
and Mr Feasey took over the reins from then onwards. Mr Cackett established
Centaur in Bermuda shortly thereafter.
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35. The lineslip was further renewed in 1996/7 Mr Feasey dealing with the renewal.
Mr Feasey, according to the judge, said in evidence that by that time he was
comfortable that Syndicate 957 was not paying out more to Steamship than Steamship
was paying its members. That belief was based on the exercise carried out with Mr
Cackett in January and February 1996 which had resulted in the agreed reductions
referred to above.

Sun Life and Phoenix

36. On 26 August 1996 Sun Life entered into an underwriting management
agreement with Centaur providing Mr Cackett on behalf of Centaur with underwriting
authority for reinsurance business. On 12 September 1996 Phoenix entered into an
underwriting management agreement on substantially the same terms with Centaur.
37. The Master Lineslip was again renewed for 1997/8. It seems some limits were
changed, further aggregate excesses were introduced but individual aggregate limits
were substantially increased with an overall limit of $33.56m which was less than the
total of the individual limits. The qualifying period for a TTD was reduced from 152
weeks to 104 weeks. Mr Feasey also introduced franchises the effect of which was
to exclude from the cover losses which did not exceed the franchise figure until
exhaustion of the franchise retention figure and to delay presentation of claims which
did exceed the figure. For example, in the case of a TTD loss, the loss had to exceed
the franchise level before it could be claimed so that if the weekly benefit level was
$1,000 and the franchise $25,000 the claim could only be made if the TTD lasted for
25 weeks for more.

Reinsurance of Syndicate 957 by Sun Life and Phoenix 1997/98 year

38. Syndicate 957 had itself been reinsured in respect of its liabilities to Steamship
under the Master Lineslip (and for other covers) by a reinsurance programme
underwritten by a number of other syndicates at Lloyds. In February 1997 the
syndicate sought a quotation from Mr Cackett at Centaur for the 1997/98 year.
Ultimately, in May 1997 Mr Cackett using American Phoenix as a front for Sun Life
and Phoenix for 50% each entered into a number of reinsurances with Syndicate 957
in respect of the syndicates liabilities under the Master Lineslip in respect of losses
occurring between 20 February 1997 and 20 February 1998. The first reinsurance was
to pay $95,000 excess of $5,000 on each and every claim. The other three
reinsurances were to protect Syndicate 957 in respect of claims related premium
adjustment payable by the syndicate on various layers of excess-of-loss reinsurances
protecting the account (described as burning costs reinsurances). The details are set
out in paragraphs 80-85 of the judges judgment. At the beginning of 1998 Syndicate
957 sought further legal advice in relation to the validity of the insurance with
Steamship. The details are set out in paragraphs 93-96 of the judges judgment.

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The three year master lineslip 1997/00 (the disputed policy)

39. The judges description is not in issue and I adopt the material parts.

40. On 14 April 1998 Mr Absalom scratched, by way of a Declaration off the

1997/8 Master Lineslip, insurance for Steamship for the three 12 month periods 20
February 1997/8, 1998/9 and 1999/00. By April 1998 the 1997/8 cover had of course
expired but the member declarations off the 1997/8 Master Lineslip were cancelled
and rewritten to become member entries to this three-year Declaration. Also on 14
April 1998 a further Master Lineslip was agreed to accept Declarations from 20
February 1998 to 20 February 2000.

41. The Declaration described the Type of Insurance as Personal Accident and/or
Illness and the Insured as Steamship. A Wording was attached in the same terms as
the original Policy Wording (paragraphs 14-24 above) save that the Schedule of
Compensation was as declared each declaration. The maximum amount recoverable
was limited in respect of each individual member to 150% of original gross annual
premium. Figures providing further limits were as set out in the schedule to the
judges judgment. There was an overall limit of $100,560,000 for the whole period.
The Information was described as as presented and noted by the Underwriter at the
inception of the Original Member Entries. The weekly TTD benefit was limited to a
maximum of 104 weeks in all. The list of Member Entries for each year recorded for
1997/8 in the case of Falcon alone that the cover was in respect of losses occurring
or first notified to Steamship in that period. In all other Member entries it was in
respect only of losses occurring. The effect was that the original 1997/8 cover for
Falcon was enlarged to cover claims notified in 1997/8 but arising in earlier years.
Those claims were of course, already known at April 1998. The figures (at August
1998) in fact show estimates for such claims of some $4.5m.
42. For the years 1998/00 the weekly TTD benefit was reduced from $1750 to
$1000 for all Member Entries and the death/PTD benefit was equalised at $400,000
for all Member Entries which involved an increase in the limits in 1997/8 in two cases
and a decrease (from $500,000) in three cases. Mr Feasey assessed the benefit levels
on the basis of as if figures between Steamship and the Syndicate. He had no figures
to assess the comparative position between Steamship and its members.
43. Mr Feasey said that after the dispute which had led to the retrospective
reduction in the TTD figure in 1996 the business had gone forward largely on the
basis of an assumption that the level of benefits was such that Steamship would not
be over-compensated in the round and the issue was what was the Syndicate
prepared to offer and whether Steamship thought it worthwhile to buy what was
offered at the price proposed. Mr Feasey also agreed that because Steamship should
not be over-compensated it was prudent to continue monitoring and adjusting to
minimise any mismatch. But that did not, (the judge found despite Mr Kendricks

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submissions), involve a detailed exercise on Steamships estimated reserves. Mr

Feasey did not undertake and never suggested he had undertaken such an exercise. He
said he relied on the 1996 exercise, the Falcon figures, Mr Johnstons letter, his
knowledge and experience of PA business and the size of awards to justify his
confidence that Steamship was not being over-compensated and would not be overcompensated by the benefit levels he was offering. He had of course reduced the
levels further, particularly the TTD figure.
44. No witness called for Syndicate 957 could recall why the covers had been
written for three years. There is no doubt that the Master Lineslip provided a
significant part of the Syndicates premium income. Those called for Syndicate 957
believed the terms were now such that there was no question of over-compensating
Steamship and that it was valuable to secure the income for a period of time when the
Syndicate was under pressure from outside competition.
45. For Steamship the evidence was that the enlargement came about because
Steamship asked for it. Mr Johnston, head of underwriting at Steamship, said
Syndicate 957 had requested a 3-year contract:
It became very obvious to us that they were extremely anxious to place this
contract. We therefore took the position that we might as well see what we can
negotiate out of this to our advantage, and one of the things that occurred to me
was that we might as well ask them whether they would be prepared to consider
losses that were going to arise during the course of the year that had not as yet
arisen.
46. Mr Johnston added that the Falcon cover had not burnt through by that time. Mr
Johnston also said that he did not think it was for Steamship to calculate any
appropriate benefit level and the Club did not do so. They were offered a cover and
had to decide if it was worth buying. Mr Martin, the claims partner of Steamship, said
the same. Steamship did not expect the protection to be the equivalent of a full
reinsurance of Steamships first retained layer and the question was would it provide
a substantial protection. Mr Martin said his evaluation in 1998 would have been that
a death claim would certainly cost more than $500K, a PTD would cost more than
$500K and a TTD more than $1,000 a week.

The Sun Life and Phoenix reinsurance 1998/00

47. In May 1998 Mr Cackett for Centaur agreed on behalf of Phoenix and Sun Life
50:50 to renew the four reinsurances of Syndicate 957. The contracts covered losses
on declarations attaching in the period 20 February 1998 to 20 February 2000.
48. In March 1998 Mr Cackett for Centaur gave six months notice to Phoenix to
terminate the underwriting management agreement between Centaur and Phoenix.

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The effect of that termination was that Centaur could write no new business for
Phoenix after 1 October 1998 but would continue to deal with existing business with
the authority of Phoenix. It is the writing of an extension to this policy by Mr Cackett
on 29 October which is the subject of the authority point.
The Reliance top-up
49. On 29 June 1998 Mr Cackett provided Mr James with a non-binding indication
for what has been referred to as the top-up or sideways cover of Steamship. The
cover was to protect Steamship for the 3 years at 20 February 1997 in the event that
the Master Lineslip (the disputed policy) total limits (overall or for individual
members) were exhausted.
50. On 17 July 1998 Lloyd Thompson wrote to Mr Johnston with an indication for
the top-up cover with a maximum limit of $40m. The indication came from Reliance
National but as a front for Centaur and Mr Cackett. The premium quoted was $15m.
It was Reliance that ultimately signed the slip on 30 September 1998. The details
appear in the judges judgment at paragraphs 115-120.
51. In February and March 1999 Steamship notified substantial claims on the topup policy with Reliance essentially arising from the deterioration of the Falcon
declaration under the Master Lineslip. Mr Cackett instructed that an audit be carried
out and it was this audit which led indirectly to the proceedings.
52. The debate which ensued on what sums Steamship were entitled to recover
under the disputed policy and the debate on figures which was continuing right up
until judgment in the trial below, is set out from paragraphs 132-143 of the judges
judgment. The conclusion of the judge by reference to the figures and the evidence is
to a large measure not challenged and it is right to set it out in full:
144. As I have said, the figures and the evidence and submissions about them
leave considerable uncertainties but I will summarise the conclusions which I
have drawn about them as a matter of probability:

[Only the second and third sentences of (vi) are the subject of challenge by Sun
Lifes notice of appeal. The answer to that challenge is provided by Steamship in
their supplementary note on the figures dated 27th February 2003.]
H

(i) In so far as it is suggested that at any material time Steamship deliberately set
out to make or appreciated it was making a profit I am entirely satisfied the
suggestion would be wrong. Steamship saw the covers as providing a worthwhile
contribution towards its overall exposures to members and did not expect to
profit or to be over-compensated, rather the opposite.

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(ii) There is no evidence to suggest that the TTD figure of $1000 a week was
greater than the cost of the same claims by members. The probability is that it
was less.
(iii) The only basis on which the figures now show that Steamship has made a
profit or been over-compensated is the inclusion of the recoveries from the excess
of loss and Reliance top-up covers.

(iv) The death benefit figure has generally been ignored in evidence, possibly
because there were only about 5 death claims in each year.
(v) The numbers of PTD claims which have arisen was unexpected and
unforeseen by Steamship in 1998 when the relevant covers were agreed and for
some time thereafter. It is the numbers of PTD claims (and the existence of the
excess of loss and top-up reinsurances which covered them) which has led to any
over-compensation.
(vi) Both Steamship and Syndicate 957 honestly believed when the relevant
covers were agreed in 1998 that the level of benefits had been set so as to
eliminate any possibility of over-compensation for Steamship. Neither had any
information to suggest the contrary and each could justify its belief on the
information available and the history of reducing levels of benefit. In the case of
Steamship that is so even with the knowledge of the excess of loss and Reliance
top-up insurance it acquired. As stated I accept Syndicate 957 was unaware of
those contracts.
(vii) Even allowing for recoveries under the excess of loss and top-up contracts
the estimated level of over-recovery in 1997 and 1998 and 1999 whilst
substantial (paragraph 139) cannot, I think, be characterised as of a size such as
to change the character of the transaction from insurance to gaming or a wager.
Moreover there is probably some unknown balancing factor resulting from
under-recovery on TTD claims.
Does s. 1 of the 1774 Act render the disputed policy illegal and void?

53. The 1774 Act is entitled:

An Act for regulating Insurances upon Lives, and for prohibiting all such
Insurances except in cases where the Persons insuring shall have an Interest in
the Life or Death of the Persons insured.
The Preamble states:

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Whereas it hath been found by experience that the making insurances on lives
or other events wherein the assured shall have no interest hath introduced a
mischievous kind of gaming.
Section 1 provides:

From and after the passing of this Act no insurance shall be made by any person
or persons, bodies politick or corporate, on the life or lives of any person or
persons, or on any other event or events whatsoever, wherein the person or
persons for whose use, benefit, or on whose account such policy or policies shall
be made, shall have no interest, or by way of gaming or wagering; and that every
assurance made contrary to the true intent and meaning hereof shall be null and
void to all intents and purposes whatsoever.
Section 2 provides:

And it shall not be lawful to make any policy or policies on the life or lives
of any person or persons, or other event or events, without inserting in such
policy or policies the person or persons name or names interested therein, or for
whose use, benefit, or on whose account such policy is so made or underwrote.
Section 3 provides:

And in all cases where the insured hath interest in such life or lives, event or
events, no greater sum shall be recovered or received from the insurer or insurers
than the amount of value of the interest of the assured in such life or lives, or
other event or events.
F

54. I should deal at the outset with a point argued by Mr Boswood on the
construction of section 1. He took us back to the 18th and 19th centuries and the
context in which the 1774 Act was passed. Two things were of importance in that
context. First, gaming and wagering outside the insurance context was lawful and
enforced by the courts. That was so until the passing of the Gaming Act 1845. Second,
throughout the 18th and first half of the 19th Century it was believed that all
insurance contracts including contracts of life assurance, were by their nature
contracts of indemnity. Godsall v Boldero (1807) 9 East. 72 was decided on that basis
and was only overruled by the Court of Exchequer Chamber in Dalby v India and
London Life Assurance Co (1854) 15 CB 365. Mr Boswood relied on the Marine
Insurance Act 1745 and its preamble. He said that it was clear from the preamble that
the mischief being aimed at by the act was the verbal formulations used to create a
wager policy. The Act, he submitted, was not concerned with saying that an assurance
could not be enforced where the insured had no interest in the ship or goods the
subject matter of insurance; that was self evident anyway. Rather, its object was to
prohibit wager policies, by specifying the various forms of words that could be used
to create such policies and saying that the use of such words invalidated the contract.
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55. Mr Boswood suggested that the same form of reasoning ought to apply to
section 1 of the 1774 Act. Since life insurance was believed to be a contract of
indemnity it went without saying that an interest in the subject matter was necessary
to support such a policy, and the section was concerned with the form of policy i.e.
that there should be no form of policy dispensing with proof of interest and no form
of policy in the form of a gaming or wagering contract.

56. Mr Boswood submitted that interest meant simply interest sufficient to

prevent the policy being a wagering contract. This submission enabled Mr Boswood
to say that since Mr Kendrick, for Sun Life, made no case that the disputed policy was
gaming or wagering, that was in effect the end of the case.
C

57. In his written submissions Mr Boswood relied on a dictum of Mr A D Colman

QC, as he then was, in The Moonacre [1992] 2 Ll Rep 501 at 509-510 where he said:
Neither the words of any statute since 1845 nor any judicial announcement
suggest that there should be a category of contracts of insurance which were not
wagering contracts but which on account of the absence of an insurable interest
should not be enforceable.
Mr Boswood in his oral submissions felt unable to support that dictum appreciating
that there were a number of authorities which concentrated on the question whether
there was an insurable interest apart from any concept of wagering.
58. I reject Mr Boswoods submission that because no-one in this case suggests that
the policy was a wagering contract, a sufficiency of interest is demonstrated. The
question whether the contract of insurance can be correctly described as gaming or
wagering is a material factor. But as Mr Boswood in reality has to accept, once
contracts of life insurance were held not to be contracts of indemnity that did not
abolish the need for an interest in the life. Indeed the whole concern of the court in
Dalby was as to whether the Anchor Life Assurance Company had an interest in the
life of the Duke of Cambridge within section 1 of the 1774 Act, albeit the court
concluded that the contract was not one of indemnity. There are furthermore dicta in
the authorities which support the view that the starting point is the question whether
there is interest not whether the contract is one of gaming or wagering (see Lord
Buckmaster in Macaura v Northern Assurance Co Ltd [1925] AC 619 at 631 and Lord
Mansfield in Lowry v Bourdieu (1780) 2 Dougl 468 at 470).
59. The critical question is not whether the policy is a wagering contract but
whether the disputed policy is an insurance made on the life or lives of any person
or persons or on any other event or events whatsoever wherein Steamship has no
interest.

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60. It is convenient to deal at this stage with a second point on construction of the
1774 Act which arises from the amendment to section 2 by section 50 of the
Insurance Companies Amendment Act 1973. Section 50 provided:
(1) Section 2 of the Life Assurance Act 1774 (policy on life or lives or other
event or events not valid unless name or names of assured etc. inserted when
policy is made) shall not invalidate a policy for the benefit of unnamed persons
from time to time falling within a specified class or description if the class or
description is stated in the policy with sufficient particularity to make it possible
to establish the identity of all persons who at any given time are entitled to benefit
under the policy.

(2) This section applies to policies effected before the passing of this Act as well
as to policies effected thereafter.

61. Section 2 of the 1774 Act has no direct application to the disputed policy since
the person to benefit is Steamship and they are named. But the effect of section 2 in
situations where the persons to benefit are within a specified class or description has
an impact on the true construction of section 1. Section 2 as amended would appear
to have no impact at all if the proper construction of section 1 was to render null and
void policies on the lives of persons who were unidentified as at the date of the policy
but would fall within a specified class or description of sufficient particularity to
make it possible to establish the identity of all persons who at any given time are
entitled to benefit under the policy.
62. The words within a specified class or description are very wide words. Mr
Kendrick would suggest that they must be confined to an identifiable group such as
employees. I do not see why that should be so. The definition of Original Person in
the disputed policy is very wide, but if one poses the question whether the
description is of sufficient particularity to make it possible to establish the identity
of all persons who at any given time would be entitled to benefit under the policy if
the policy had been for the benefit of Original Persons, the answer seems to me to be
that it would.

63. It follows, as it seems to me, that Parliament must be taken at least, following
the amendment to section 2, not to have intended that section 1 would make null and
void an insurance on lives of persons unidentified as at the date of the policy, but
within a description such as that given for Original Persons.
H

64. I now turn to the key issue Steamships insurable interest. Interest in the
1774 Act is undefined. Both in that context and in others it has been a concept which
has proved difficult of precise definition. Thus MacGillivray on Insurance Law (10th
edition) when considering insurable interest generally says this at paragraph 1-11:

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Nature of insurable interest. Insurable interest may be described loosely as the

assureds pecuniary interest in the subject-matter of the insurance arising from a
relationship with it recognised in law.
The footnote to that definition says see para. 1-74, post, and the definitions attempted
in paras. 1-49 and 1-120, post.

65. Paragraph 1-49 says:

Working definition. All previous editions of this work have provided the
following good working definition applicable to all risks under the Life
Assurance Act 1774: Where the assured is so situated that the happening of the
event on which the insurance money is to become payable would, as a proximate
cause, involve the assured in the loss or diminution of any right recognised by
law or in any legal liability there is an insurable interest in the happening of that
event to the extent of the possible loss or liability.

66. At paragraph 1-74 it is said:

Pecuniary really means no more than that the interest must be capable of
valuation by a court, and this is necessary inasmuch as section 3 of the Act
provides that the assured shall not recover more than the value of his interest at
the time the contract was made.

At paragraph 1-75 it is said:

Besides being capable of valuation, the interest must be of such a nature that the
law will take cognisance of it. The assured must show that he will or may lose
some legal or equitable right or be placed under the burden of some legal liability
in consequence of the death of the person whose life is insured. A mere
expectancy or hope of future pecuniary benefit from the prolongation of the life
insured or of the fulfilment by him of moral obligations owed to the assured, are
insufficient to sustain an insurable interest. If, however, the death of the life
insured will involve the assured in a liability, it is no answer for the insurers to
show that he will also derive some compensating benefit, since the contract is not
one of indemnity and the insurers may not set off the assureds gain against his
loss.
67. Section 5 of the Marine Insurance Act 1906 which codified the common law so
far as Marine Insurance was concerned defined an insurable interest in the following
way:
1. Subject to the provisions of this Act every person has an insurable interest
who is interested in a marine adventure.

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2. In particular a person is interested in a marine adventure where he stands in a

legal or equitable relation to the adventure or to any insurable property at risk
therein, in consequence of which he may benefit by the safety or due arrival of
insurable property, or may be prejudiced by its loss, or by damage thereto, or by
the detention thereof, or may incur liability in respect thereof.
68. The notes in the 10th edition of Chalmers Marine Insurance Act 1906 under
section 5 include a reference to the famous dictum of Lawrence J when providing
advice to the House of Lords in Lucena v Craufurd (1806) 2 Bos & Pul (NR) 269 at
302 where he said:
Interest does not necessarily imply a right to the whole or part of the thing, nor
necessarily or exclusively that which may be the subject of privation; but the
having some relation to or concern in the subject of insurance, which relation or
concern, by the happening of the perils insured against, may be so affected as to
produce a damage, detriment, or prejudice to the person insuring to be
interested in the preservation of a thing, is to be so circumstanced with respect to
it as to have benefit from its existence, prejudice from its destruction.
69. Lucena v Craufurd was concerned with insurance on certain ships and the
advice of Lawrence J was to the effect that there was no insurable interest in the ships
in that case. In the decision of the House of Lords in the speech of Lord Eldon he also
dealt with insurable interest in these terms:
I have in vain endeavoured however to find a definition of that which is between
a certainty and an expectation; nor am I able to point out what is an interest unless
it be a right in the property, or a right derivable out of some contract about the
property, which in either case may be lost upon some contingency affecting the
position or enjoyment of the party.
70. There has been some debate as to whether Lord Eldons test is narrower than
Lawrence Js, and as to whether Lawrence Js test, being contained only in an advice,
should be rejected in favour of Lord Eldons which was contained in a speech
pronouncing the decision. Since Lucena v Craufurd was concerned with the insurance
of property it is unnecessary to resolve that debate, but I do note that Lawrence Js
test has been approved many times in later decisions (see for example Blackburn J in
Wilson v Jones (1867) LR 2 Ex 139 in a passage quoted later in this judgment at
paragraph 88 and, more recently, Kerr LJ in Mark Rowlands v Berni Inns [1986] 1 QB
211 at 228).
71. The above demonstrate, I would suggest, that it is difficult to define insurable
interest in words which will apply in all situations. The context and the terms of a
policy with which the court is concerned will be all important. The words used to
define insurable interest in for example a property context, should not be slavishly

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followed in different contexts, and words used in a life insurance context where one
identified life is the subject of the insurance may not be totally apposite where the
subject is many lives and many events.

Date for insurable interest and valuation

72. One other general point to make at this stage relates to the date at which an
insurable interest must exist, and (where relevant) the date at which it must be valued.
In an indemnity policy the relevant date is the date of loss. If the policy is not a valued
policy, liability will also be assessed at the date of loss. Where the policy is a valued
policy, that value will have been assessed at the date of the policy, and in the absence
of fraud the value fixed by the policy will as between the insurer and the assured be
conclusive of the insurable value of the subject intended to be insured whether the
loss be total or partial (see section 27(3) of the Marine Insurance Act 1906).
73. In a life policy the date at which the insurable interest must exist is the date of
the taking out of the policy. Furthermore, that is the date for valuing the insurable
interest (see Dalby). In Godsall v Boldero a policy for the sum of 500 had been taken
out on the life of the late Mr Pitt by the plaintiffs who were creditors of Mr Pitt. Lord
Ellenborough CJ in the judgment of the court said:
The event against which the indemnity was sought by this assurance, was
substantially the expected consequence of his death as affecting the interests of
these individuals assured in the loss of their debt.

In the result as the personal representatives of Mr Pitt had paid off the debt the court
held that the sum of 500 was not recoverable under the policy.
74. Godsall v Boldero was overruled by Dalby. In Dalby the Anchor LifeAssurance Company had insured the life of the Duke of Cambridge in four separate
policies two for 1,000 and two for 500 each granted by that company to the Rev
John Wright. Anchor wished to limit their liability on the Dukes life and took out a
policy with the defendants for 1,000 by way of counter insurance. Under an
arrangement between Anchor and Wright, Anchors liability under the policies they
had issued on the Dukes life was subsequently extinguished or severely limited. The
court held that a life assurance was a contract to pay a certain sum of money and not
an indemnity; that the date at which an insurable interest should exist was the date
when the policy was taken out so far as section 1 was concerned; that the date of
valuation of that interest was the date when the policy was taken out; and, in the
circumstances, even if liability under the original policies had been extinguished,
Anchor were entitled to recover 1,000 on the counter insurance.
75. It is convenient in this context to refer to Hebdon v West (1863) 3 B & S 579
which the judge in his judgment thought possibly inconsistent with Dalby. In that case

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a bank clerk had insured his employers life with two insurance companies. The first
policy was for 5,000 and the second for 2,500. The bank clerk had borrowed 4,700
which the employer had subsequently said would not be called in during his lifetime.
In 1856 the bank clerk took out a policy on his employers life with an insurance
company for 5,000. In 1857 the debt having increased to 6,000, the employee
effected a further policy of insurance for 2,500 with another insurance company. The
employer died in 1861. The bank clerk recovered 5,000 under the first policy and
paid that sum to the bank. The court decided that the bank clerk did not have an
insurable interest by reference to the unenforceable promise not to call in the sum
during the employers lifetime. The court decided that the bank clerks insurable
interest in the life of his employer was simply by reference to the engagement to
employ the bank clerk for seven years at a salary of 600 a year to the extent that such
period remained at the time when the policy was effected. The court assessed the
value of the insurable interest at 3,000 i.e. five years times 600 as at the date of the
taking out of the first policy. The court held that the bank clerk could:
only recover or receive upon the whole the amount of his insurable interest, and
if he has received the whole amount from one insurer he is precluded by the terms
of the third section of the statute from recovering or receiving any more from the
others.
76. Langley J thought that Hebdon was inconsistent with the reasoning in Dalby. In
MacGillivray on Insurance Law it is suggested that the judges criticism of Hebdon
may be unjustified in that it says:
The assured in Hebdon failed to recover on the second policy not because he no
longer possessed an interest worth 2,500 when the life dropped, but because he
had already recovered more than his interest was worth when he took out the
second policy. The question of multiple insurances did not arise in Dalby.
77. I think that by that sentence the authors mean that he had already covered
more than his interest when he took out the second policy. It may be on this basis that
the judges criticism of the decision is not justified. Dalby and Hebdon are consistent
on the following basis. The value of an interest at the time of taking out the policy is
assessed on the maximum pecuniary loss that the assured could suffer on the death of
the life assured. In Dalby that was 3,000; in Hebdon that was 3,000. Nothing in
excess of those values could be recovered. In Dalby that led to recovery of 1,000,
and in Hebdon that led to a result that since more than 3,000 had been covered by
the first policy, there was no interest in taking out a second policy.
78. But, in the above decisions, one can see already a tension between (1) an
insurance being intended to be an indemnity against loss; (2) an anxiety that insurance
should not be used as a means of gambling or wagering on an event in which an
insured may have no interest; and (3) an anxiety to see that insurers who receive

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premiums and make bargains in respect of those premiums pay on the bargains that
they have made.
79. What is also clear from the above authorities, and from the authorities to which
I am about to turn, are the principles which one sees reflected in section 26 of the
Marine Insurance Act 1906 as applied to all forms of policy. Section 26 provides:

(1) The subject-matter insured must be designated in a marine policy with

reasonable certainty.
(2) The nature and extent of the interest of the assured in the subject-matter
insured need not be specified in the policy.

(3) Where the policy designates the subject-matter insured in general terms, it
shall be construed to apply to the interest intended by the assured to be covered.
80. When one examines the authorities therefore one sees that the court is
concerned to analyse by reference to the terms of the policy what is the subject of the
insurance; to analyse what insurable interest a person has in the subject of the policy;
and to consider whether the subject embraces that insurable interest in the words of
Blackburn J in Anderson v Morice (1875) 10 CP 609 at 622. Where on the wording
of the policy the subject is not absolutely clear cut, it sometimes assists to identify the
subject to ask what insurable interest the person has, but essentially the subject is
defined by the words of the policy. It follows that in some cases the subject is so clear,
that even when the insured can identify some insurable interest that it might have had,
it will be held that the insured has failed to cover that interest by the policy. In other
cases what is embraced within the subject of the policy is less clear-cut, and in those
circumstances the court may be able to say that the insurable interest is embraced
within the subject of the insurance. The different elements of subject, insurable
interest, and value are separate but impact one on the other.
81. With the above in mind, one can place cases in groups. Group (1) are those
cases where the court has defined the subject matter as an item of property; where the
insurance is to recover the value of that property; and where thus there must be an
interest in the property real or equitable for the insured to suffer loss which he can
recover under the policy. Within this group are Lucena v Craufurd to which I have
already referred. The subject was certain identified ships; the perils insured against
were the loss of the ships; the Commissioners had no interest legal or equitable in the
ships but a mere expectation. That expectation could not be insured therefore the
subject did not embrace the insurable interest. Also within this group is Anderson v
Morice (1875) 10 CP 609; (1876) 1 App Cas 713. Rice was the subject matter of the
policy; if uninsured the plaintiff would have suffered no loss from any destruction of
the rice since they were never at the plaintiffs risk; the loss of profits might have been
insured but were not. Therefore the plaintiff could not recover. In Macaura v

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Northern Assurance Co [1925] AC 619 the subject matter of the insurance was
identified timber owned by a company; a shareholder in the company had no interest
in the timber whatever in that even without insurance the shareholder would suffer no
pecuniary loss from destruction of the timber as such. Any loss suffered would have
been as shareholder and his profits as shareholder were not the subject of the
insurance. It was however recognised in Macaura that it would have been possible to
so describe the subject of the insurance as to embrace the insurable interest in profits,
and approval was given to Wilson v Jones (1867) LR 2 Ex 139 to which I will return.
82. Group (2). These are cases where the court has defined the subject matter as a
particular life of a particular person; and where the insurance is to recover a sum on
the death of that person. In these cases the court has recognised an insurable interest
in that life where a pecuniary loss flowing from a legal obligation will or might be
suffered on the death of that particular person. In Godsall v Boldero, the limit
recoverable was the actual loss suffered but post Dalby the fixed sum became
recoverable provided that it did not exceed the maximum which might have flowed
from the legal obligation measured as at the date of entry into the policy. Hebdon is
also within this group.
83. Halford v Kymer (1830) 10 B & C 724 is a case which relates to a policy taken
out on the life of a son. What was argued was that the father had a pecuniary interest
in the life of his son having regard to the chance of the father being maintained in his
old age. Bayley J is recorded as saying:
The parish is bound to maintain him, and it is indifferent to him (the father)
whether he be maintained by the parish or his son.

One wonders whether the same decision would be reached in the modern era but the
decision is to the effect that there was no pecuniary interest in the life of the son in
that there was no legal right to be maintained by a son.
84. Law v London Indisputable Life Policy Co (1855) 1 K & J 223 was a case in
which the plaintiff had purchased from his son a contingent legacy of 3,000,
bequeathed to him if he should attain 30 years of age. The plaintiff applied to the
defendant to insure the event of his son attaining the age of 30, some 20 months
before the sons 30th birthday. The agent for the company said that the insurance
would have to be for two years. The son did attain 30 but died before the expiration
of the two years. Following Dalby it was held that the father had a pecuniary interest
in the life of his son when he took out the policy and that the value of the same was
the 3,000 and thus the father was entitled to recover the 3,000 as well as having
received the legacy bequeathed to the son.
85. Simcock v Scottish Imperial Insurance Co (1902) 10 SLT 286. Lord Pearson
followed Hebdon v West holding that the value in the life of an employee was limited

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to the one week period of notice. He therefore held that where the employer had taken
out insurance with two different entities for the sum of 250, the employer was only
entitled to recover one of them.
86. Harse v Pearl Life Assurance Co [1903] 2 KB 92. Insurance was taken out on
the life of a mother by a son to cover funeral expenses. It was accepted by the son that
the policy was illegal and void for want of insurable interest and the only question
was whether the son could recover the premium. In that context the court held that the
son did not have insurable interest in that there was no legal obligation to pay funeral
expenses but as he was not in pari delicto he could recover the premium.
87. Group (3). There are then cases where even though the subject matter may
appear to be a particular item of property, properly construed the policy extends
beyond the item and embraces such insurable interest as the insured has. Wilson v
Jones (1867) LR 2 Ex 139 exemplifies this group and is I suggest an important
decision. The plaintiff was a shareholder in the Atlantic Telegraph Co. He insured
himself with the defendant under a form of marine policy in common form but filled
up with marginal additions. Those marginal additions contained the following words:
At and from Ireland to Newfoundland, the risk to commence at the lading of the
cable on board the Great Eastern, and to continue until it be laid in one
continuous length between Ireland and Newfoundland, and until 100 words shall
have been transmitted each way the ship, etc., goods, etc., are and shall be
valued at 200 on the Atlantic cable, value, say on 20 shares, at 10 per share.

And also, written opposite to the clause:

touching the adventures, etc., the words it is hereby understood and agreed that
this policy, in addition to all perils and casualties herein specified, shall cover
every risk and contingency attending the conveyance and successful laying of the
cable, from and including its loading on board the Great Eastern, until one
hundred words be transmitted from Ireland to Newfoundland, and vice versa, and
it is distinctly declared and agreed that the transmission of the said one hundred
words from Ireland to Newfoundland, and vice versa, shall be an essential
condition of the policy.
The attempt to lay the cable failed, through the cable breaking. The argument of the
insurers included an argument that the subject matter of the insurance was the cable
and that the plaintiff as a shareholder in the company had no pecuniary interest in the
cable.
88. It was recognised by the court that the plaintiff as shareholder had no direct
interest in the cable (see pages 144-145 in the judgment of Willes J, with which on
this aspect all members of the court agreed). Willes J at 145 then said:

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The first question therefore is, what was the subject matter insured? Is this, as
has been contended, an insurance on the cable, or is it an insurance of the
plaintiffs interest in a share of the profits to be derived from the cable which was
to be laid down? In one sense, indeed, it is an insurance on the cable; that is, it
affects the cable, as an insurance on freight affects the ship. The state of the ship
and freight are so connected that it is impossible that they should be dissevered,
except in cases where the loss of freight is effected by the loss of the goods only,
in which case it might equally be said that the insurance on freight is an insurance
on the goods. But except in that sense, it will appear, when the language of the
policy is examined, that the insurance is an insurance, not on the cable, but on the
interest which the plaintiff had in the success of the adventure.

He then quoted the words already referred to and said:

It is impossible to avoid arriving at the conclusion stated by Martin B, as the

opinion of the Court below, that this was an insurance on the plaintiffs interest
in the adventure.
89. In the judgment of Blackburn J at p. 150 he said:

I know no better definition of an interest in an event than that indicated by

Lawrence J, in Barclay v Cousins 2 East 544, and more fully stated by him in
Lucena v Craufurd 2 B & P (NR) that if the event happens the party will gain an
advantage, if it is frustrated he will suffer a loss. Now we must see whether the
plaintiff was in this position. He was interested in a company which was about to
lay down a cable across the Atlantic. If that event happened, there can be no
doubt the owner of shares in the company would be better off; if it did not
happen, there can be no doubt his position would be worse. It follows, then,
equally without doubt, that if by proper words the parties have entered into a
contract of insurance for that interest, the policy is good. Now, if they had
stopped at the word cable, the plaintiffs interest would not have been correctly
or sufficiently described, according to the principle of the case of McSwiney v
Royal Exchange Assurance Company 14 QB 634, 646; 18 LJ (QB) 193; 19 LJ
(QB) 222. Neither if they had said that it was the cable as shipped on board the
Great Eastern, would it have been a sufficient description. But here they have
used words as to which I will only say, that no one who looks at them fairly, and
reads them in connection with the circumstances, can fail to see that the intention
of the parties would be frustrated by such a construction as is contended for by
the defendant.
90. Group 4 are policies in which the court has recognised interests which are not
even strictly pecuniary. In relation to life policies there are policies on own life;
policies on husbands life and policies on the life of the wife see e.g. Griffiths v
Fleming [1909] 1 KB 805. But even in the case of property something less than a legal

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or equitable or even simply a pecuniary interest has been thought to be sufficient. In

The Moonacre [1992] 2 Ll Rep 501 Anthony Colman QC (sitting as a Deputy Judge
of the High Court) ruled that the insured, Mr Sharp, had an insurable interest in the
boat the subject of the insurance. The boat was owned by a company which was 100%
owned by Mr Sharp, but it was the two powers of attorney granted by the company
to Mr Sharp giving him wide authority to enjoy and use the vessel exclusively for his
own purposes that provided the insurable interest. The judge said:
That was a valuable benefit which would be lost if the vessel were lost. The legal
relation in which he stood to the vessel was that for as long as the powers of
attorney remained he was entitled to use it for his own purposes and to exercise
over it such control as he saw fit. His powers were such that he could even
abandon it to the insurers in the event of a constructive total loss; a relation to the
goods sometimes considered decisive on the issue of title to sue:
91. In Glengate-KG Properties Ltd v Norwich Union Fire Insurance Society Ltd
[1996] CLC 676, the judgment of Neill LJ described the judgment of Mr Colman QC
in The Moonacre as a valuable judgment. Auld LJ was clearly less sure that the
ruling was right, and what he said at 689 was:
Nevertheless, Mr Falconers reservations about enlarging the notion of insurable
interest in relation to material damage cover made good sense to me, and they
appear to reflect the present state of English law.
But where the insurance cover in issue is against some loss consequential on
damage to property, there is no reason why there should be so close a legal
relationship between the insured and the object damaged. The insurable interest
is in the event insured against rather than in the object the damage to which
causes that event. See MacGillivray & Parkington on Insurance Law (8th edn),
p. 54, para. 129; and Anderson v Morice (1875) LR 10 CP 609, per Lord
Chelmsford at pp. 722 and 723.
92. I have so far not referred to Deepak Fertilisers v ICI Chemicals [1999] 1 Ll Rep
387 on which Mr Kendrick placed great reliance. In that case there had been posed
for the court certain questions all relating to whether ICI and/or Davy McKee
(London) Ltd (Davy) were on certain assumed facts relieved from liability for the
destruction of a methanol plant in India. One point taken by Davy, who were subcontractors, was that they were co-insured under a policy taken out in relation to the
period of construction of the work. Furthermore, Davy asserted that Deepak were
obliged to make them co-insured in all policies of insurance effected in respect of the
plant and that thus Davy should have been made co-insured under a fire policy which
was taken out after the execution of the work finished.
93. Rix J had held that Davy had an insurable interest in the plant:

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As long as they are arguably responsible for damage to it. Since it was Deepaks
case that Davy and ICI were responsible for the explosion, even though it
occurred after a time which Deepak accept saw completion of the plant, there was
no reason in principle why Davy and ICI should not be entitled to insure against
their potential liability.
The Court of Appeal dealt with this aspect in the following way:
65. In our judgment Davy undoubtedly had an insurable interest in the plant
under construction and on which they were working because they might lose the
opportunity to do the work and to be remunerated for it if the property or
structure were damaged or destroyed by any of the all risks, such as fire or
flood. Thereafter Davy would only suffer disadvantage if the damage to or
destruction of the property or structure was the result of their breach of contract
or duty of care. In order to protect the contractor and sub-contractors against the
risk of disadvantage by reason of damage or destruction of the property or
structure resulting from their breach of contract or duty they would, in
accordance with normal practice, take out liability insurance or, in the case of
architects, professional indemnity insurance. We consider Mr Havelock-Allans
submission is well founded; what they cannot do is persist in maintaining an
insurance of the property or structure itself. Two dates are critical. The
commissioning of Deepaks plant was completed on Jan. 31, 1992. Davy
continued to work on the plant thereafter to rectify construction defects but, by
Aug. 10, 1992, all known construction defects had been rectified and rectification
work had been inspected. At the latest the construction of the plant was complete
by Aug. 11. Thereafter, with effect from Aug. 11, 1992, Deepak transferred the
insurance of the plant from the Marine-cum-Erection Policy (under which Davy
and other Contractors and Sub-contractors appointed from time to time had
been named as co-assured) to the conventional property insurance policy under
which the existing ammonia plant was already insured (i.e. the Fire Policy).
Davy was not named as a co-insured under this policy. Thus by the time the
insurance of the plant was switched to the Fire Policy, Davy was no longer
bound to be prejudiced if the plant was damaged or destroyed by an insured peril.

66. Accordingly, we must differ from the approach adopted by the learned Judge.
He held that he could see no reason why Davy (and ICI) should not have an
insurable interest in the plant so long as they were arguably responsible in some
way for damage to it. He posed the question:
H

Why should not an architect or any technical designer or constructor be able to

insure himself against his liability for damages to a structure due to his fault, even
though the structure fails after its completion?

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67. They could, of course, do so. This would be by means of liability insurance.
Even if Davy (and ICI) or any of the sub-contractors had been named in the
subsequent Fire Policy they would not have been covered in respect of their
breach of contract or duty under that policy. We therefore reverse the Judges
findings on this issue and hold that Davy had no insurable interest in the plant on
Oct. 30, 1992, the date of the explosion, giving rise to Deepaks claims.
94. There are various points to make on Deepak. First, so far as the all risks policy
during the currency of the contract period was concerned, an insurable interest even
on property seems to go beyond a legal or equitable interest in the property. A subcontractors insurable interest on the judgments in Deepak flows from the pecuniary
loss that he will suffer from the loss of the opportunity to do work if the plant was
destroyed by fire. Second, Deepak recognises unsurprisingly that a sub-contractor has
an insurable interest in his own liability for negligence which he can also insure. But
third, in Deepak it was common ground that if Davy were co-insureds they would
have a complete answer to the subrogated claim even if damage was due to their
negligence. It was thus unnecessary for the Court of Appeal to analyse or deal with
how if Davy as sub-contractor was a co-insured it had an insurable interest in the
whole plant and thus how as a co-insured Davy would have an answer to any
subrogated claim if the explosion had occurred during the period of construction,
unless Davys insurable interest during this period included Davys liability in
negligence or in contract. In the judgment reference is made to Petrofina (UK) Ltd v
Magnaload Ltd [1983] 2 Ll Rep 91; [1984] QB 127; Stone Vickers Ltd v Appledore
Ferguson Shipbuilders Ltd [1991] 2 Ll Rep 288 and National Oilwell (UK) Ltd v
Davy Offshore Ltd [1993] 2 Ll Rep 582. No disapproval is expressed of those
decisions; it is simply said that in each case the insurable interest subsisted during
construction and commissioning. Those decisions were themselves at first instance
being respectively of Lloyd J, Mr Anthony Colman QC sitting as a Deputy Judge of
the High Court and Colman J as he then became. Petrofina was however also
approved in the Court of Appeal (save in one immaterial respect) in Mark Rowlands
Ltd v Berni Inns Ltd [1986] 1 QB 211. They have been followed in Hopewell Project
Management Ltd v Ewbank Preece Ltd [1998] 1 Ll Rep 448, a decision of Mr
Recorder Jackson QC (as he then was). Petrofina, Stone Vickers, and National Oilwell
were also extensively analysed and approved so far as material in the judgment of
Brooke LJ in Co-operative Retail Services Ltd v Taylor Young Partnership (2000) 74
Con LR 12. That judgment was itself approved when the case went to the House of
Lords [2002] UKHL 17. These decisions hold that persons in the position of subcontractors have an insurable interest in the work or plant as a whole; the definition
of that interest relied on in those authorities comes originally from a judgment in the
Canadian Supreme Court, Commonwealth Construction Co v Imperial Oil (1976) 69
DLR (3rd) 558 which in terms recognised the insurable interest of sub-contractors
having its source in the very real possibility (may) of liability, considering the close
relationship of the labour performed by the various trades under their respective
agreements. They held further that sub-contractors can recover from insurers the full

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value of the works holding (where appropriate) the balance beyond their interest in
trust for the owner. They further held most relevantly that sub-contractors can defeat
a subrogated claim based on the sub-contractors liability in negligence to the owner
because the insurers were pursuing a claim in relation to the loss covered by the
policy.
95. MacGillivray on Insurance Law (10th edition) is critical of these decisions and
indeed suggests Deepak has added force to the criticism (see para 1-155 to 1-157). It
may be as reflected in paragraph 1-159 of MacGillivray that the true answer is that
the risk of being held liable for causing damage to property, will not by itself create
an insurable interest in the property, but if there is a further legal link that interest may
also be embraced within the subject of the insurance. I suggest that the question truly
is one of construction. It may be more usual to cover liability with liability insurance.
But there is no hard and fast rule and where the subject of insurance is intended to be
and can properly be construed as embracing the insurable interest in relation to
liability, there is no reason not to so construe it. The point is exemplified by the fourth
point I make on Deepak by reference to the views of Stuart-Smith LJ on the fire
policy. The fact that you may have an insurable interest relating to liability does not
necessarily mean that that interest will be covered by a policy identified by reference
to a specific subject matter. If the insurance policy is simply taken out on the plant, as
one would expect from a fire policy, post-construction period, such a fire policy
may not be construed to embrace the only insurable interest which Davy has. But that
should be contrasted with the position where it is intended during the construction
period that liability will be embraced.
96. The final point to make on Deepak is that I would suggest that the
circumstances in Deepak were such that the court may have been more reluctant than
in many cases to hold that such insurable interest as Davy had was embraced by the
subject of the policy. The decision is not authority for any broader proposition such
as it being impossible to cover the insurable interest of liability by virtue of a policy
on property if the terms of the policy embrace the insurable interest.
Summary of the principles

97. The principles which I would suggest one gets from the authorities are as
follows: (1) It is from the terms of the policy that the subject of the insurance must be
ascertained; (2) It is from all the surrounding circumstances that the nature of an
insureds insurable interest must discovered; (3) There is no hard and fast rule that
because the nature of an insurable interest relates to a liability to compensate for loss,
that insurable interest could only be covered by a liability policy rather than a policy
insuring property or life or indeed properties or lives; (4) The question whether a
policy embraces the insurable interest intended to be recovered is a question of
construction. The subject or terms of the policy may be so specific as to force a court
to hold that the policy has failed to cover the insurable interest, but a court will be

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reluctant so to hold. (5) It is not a requirement of property insurance that the insured
must have a legal or equitable interest in the property as those terms might normally
be understood. It is sufficient for a sub-contractor to have a contract that relates to the
property and a potential liability for damage to the property to have an insurable
interest in the property. It is sufficient under section 5 of the Marine Insurance Act for
a person interested in a marine adventure to stand in a legal or equitable relation to
the adventure. That is intended to be a broad concept. (6) In a policy on life or lives
the court should be searching for the same broad concept. It may be that on an
insurance of a specific identified life, it will be difficult to establish a legal or
equitable relation without a pecuniary liability recognised by law arising on the death
of that particular person. There is however no authority which deals with a policy on
many lives and over a substantial period and where it can be seen that a pecuniary
liability will arise by reference to those lives and the intention is to cover that legal
liability. (7) The interest in policies falling within section 1 of the 1774 Act must exist
at the time of entry into the policy, and be capable of pecuniary evaluation at that
time.

The terms of the disputed policy

98. It is common ground, and clearly right, that the policy in the instant case is a
policy to pay fixed sums on the happening of certain events. It therefore falls within
section 1 of the 1774 Act. But the fact that sums are payable on certain events does
not in my view end the enquiry as to what the subject matter of the insurance is or the
enquiry in particular as to whether the subject matter of the insurance embraces the
insurable interest. Furthermore, it is not in my view a legitimate starting point to say
that because normally such and such a type of risk would be insured in a certain way,
therefore a different form of policy must be unlawful. Each case must depend on the
precise terms of the policy under consideration. The questions are what on the true
construction of the policy is the subject matter of the insurance? Is there an insurable
interest which is embraced within that subject matter? Is the insurable interest capable
of valuation in money terms at the date of the contract? The question that will then
arise under section 3 is whether the sum payable under the policy is greater than the
value of the pecuniary interest valued as of the date of the policy?

99. In argument there was much concentration by Mr Kendrick on the fact that on
the death of an Original Person a sum became payable to Steamship; much
concentration on the fact that the identity of that Original Person might not even be
known at the date when the policy was entered into; much concentration on the
question of the interest that Steamship had in the life or health of any Original Person.
What interest (it was argued) was there in the life of any Original Person in relation
to whom liability of the rigger and a member was never established, for example? I
have come to the view that that is to look at this policy through too narrow a
perspective.

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100. The disputed policy is not on any view simply a life policy which pays
Steamship on the death of a particular identified individual. The terms of the
declaration, and the wording agreed, demonstrate that this was insurance covering a
three year period. It was agreeing to pay fixed sums by reference to bodily injury
and/or illness sustained by Original Persons but in respect of losses occurring in
respect of member entries. Members are defined as owners and/or other persons
interested in any entered vessel to whom the insured has obligations under its rules.
One can see from the wording of the policy that the object of the policy was to cover
Steamship for the losses it would suffer as insurer of its members under its rules. I
emphasise this is not seeking to place a construction on the policy to the effect that
sums were only payable once liability was established against a member and as
against Steamship, but the policy was devised by its terms to compensate for those
losses which over a three year period were bound to occur. The policy did so by
reference to fixed sums payable on certain of the events, those events being within the
general ambit of events for which members and thus Steamship would have to pay.
Furthermore, by virtue of the construction which the judge put on the policy, with
which I have said I agree (see paragraph 28 above), Steamship would only be entitled
to keep those sums paid as fixed sums where liability as between the member and the
Original Person was in fact established.
101. If one asked the question whether Steamship had a pecuniary interest in
covering losses over the three year period for which it may be liable, it seems clear
that it would have and indeed that is not disputed. Did that interest exist at the time
the policy was taken out? The answer is as in Dalby, Steamship had a legal obligation
which might lead to substantial sums being payable. Was it capable of pecuniary
evaluation? The answer is that it was, or at the least it was possible to say that the
overall limit did not exceed the potential liability. Is the subject so specific that it does
not embrace the interest? The answer in my view is no. I emphasise again the
wording. The wording provides that Original Persons by reference to whom a fixed
benefit must be paid, must be persons engaged on an entered vessel. An entered
vessel is one entered by a member of the club with Steamship during the relevant
period in respect of any of the risks enumerated in the wording itself. A member has
to be a person interested in any entered vessel and the person to whom Steamship has
obligations under its rules in respect of the bodily injury suffered by an Original
Person. It does not seem to me to be an abuse of language to say that Steamship has
an insurable interest in the lives and wellbeing of Original Persons as defined by the
policy. There is thus no reason not to construe the subject of the disputed policy as
embracing that insurable interest.
102. In my judgment, in agreement with the judge, I see no reason why the disputed
policy should be held to be in violation of section 1 of the 1774 Act.
Section 3

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103. Having identified the insurable interest embraced by this policy I find it
difficult to see quite what argument Mr Kendrick can maintain on behalf of Sun Life.
104. The interest in persons and events the subject of this insurance which
Steamship had, so far as I can see from the cases, has to be assessed on the worst case
basis. In Dalby the value of Anchors interest in the life of the Duke of Cambridge
was assessed on the basis that Anchor might have had to pay the full sums due under
the policies that they had issued. There was no suggestion that any discount to that
value should be applied by reference to facts which could easily have been assumed
as at the date of the taking out of the relevant policy i.e. that the policies might have
been surrendered as they were. Furthermore, in cases in which the court has held that
a creditor has an insurable interest in the life of the debtor, the value of the interest is
again assessed on the worse case basis without any discount being given for the
possibility that the insured may be repaid the debt and thereby obtain double recovery.
105. If that be the correct approach then what Sun Life have to show is that there
was no possibility of Steamships liability to its members reaching the limits under
the disputed policy, those limits being $1m from any one event and a total limit of
$100,560,000 in respect of losses over the whole period.
106. What Sun Life appear to be attempting to do is, with the benefit of hindsight,
to examine whether Steamship is in fact recovering more than that for which it is
liable under its policy with its members. In particular they seem to be indulging in an
exercise which looks at that question not just by reference to the policy which is
disputed, but by reference to the excess loss and top-up policies which Steamship also
took out.
107. If this were a valued policy then, in the absence of fraud, the value fixed by
the policy would, as between the insurer and the insured, be conclusive of the
insurable value of the subject intended to be insured (see section 27(3) of the Marine
Insurance Act). Once appreciated that value must be assessed at the time that the
policy is entered into, and once appreciated that the assured is entitled to place such
value on his interests as reflects the worse case scenario, I do not think that Sun Life
have even begun to demonstrate that Steamship are seeking to recover an amount in
excess of the value of the interest as at the date of the policy.
108. I should also add that even performing the calculations they do, it is only the
existence of the excess-of-loss or top-up reinsurance that provides a factual case that
Steamship are recovering in excess of their liabilities. In my view Hebdon shows that
if that provided an argument for anyone that Steamship could not recover more than
the value of their insurable interest, it provided it to the excess-of-loss or top-up
insurers and not Syndicate 957.

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109. Thus, again in agreement with the judge, Sun Life gain no advantage from
section 3.
110. I would accordingly dismiss the appeal on the insurable interest issue for the
above reasons, and on the authority issue for the reasons given by Dyson LJ.

Dyson LJ:
The issues arising under the Life Assurance Act 1774

111. I agree that this appeal should be dismissed. I add a few words of my own on
the question of whether Steamship had an insurable interest in the Original Persons
whose bodily injury and/or illness was the event on which payment under the policy
depended.
112. It is not in issue that the insurance policy fell within the scope of section 1 of
the Life Assurance Act 1774. It was not an indemnity policy in the strict sense, that is
to say a policy under which the insurer was obliged to pay a claim only when the
insured had suffered a loss. The subject matter of this policy was the contingency of
bodily injury/illness of an Original Person tout court. Original Persons as defined
were a broad class of persons. It was possible to say at the outset whether, if a person
suffered a bodily injury/illness, he or she would belong to this class of persons. It was
not, of course, possible at the outset to say who, if anyone, would in fact suffer such
an injury/illness so as to come within the class of Original Persons.
113. It is obvious and not disputed that, if the subject matter of the policy had been
the liability of Steamship members for the injury/illness of Original Persons,
Steamship would have had an insurable interest in the subject of the policy. Mr
Kendrick submits that contingency and liability insurance are fundamentally different
from each other, so that the insurable interest sufficient to support one is not sufficient
to support the other. Further, he submits that in the case of contingency insurance the
insured must stand in a legal or equitable relation to the subject of the insurance. On
the facts of this case, there is no such relation between Steamship and the Original
Persons. In short, Steamship would have an insurable interest in the liability of its
members for injury/illness sustained by persons who fall within the definition of
Original Persons; but not an insurable interest in the well-being of such persons per
se.
114. I accept that contingency and liability insurance are different forms of
insurance. But I find it difficult to see why in principle Steamships contingent
liability to indemnify its members against their liability for bodily injury/illness to
Original Persons is not sufficient to give Steamship an insurable interest in the wellbeing of those persons. It is a non-sequitur to reason that because (a) Steamship would
have an insurable interest in the liability of its members to those persons, therefore (b)
it cannot have an insurable interest in those persons themselves.
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115. Waller and Ward L JJ have referred to some of the relevant authorities. A
number of them concerned the question whether a subcontractor or supplier to a
construction contract has an insurable interest in the entire project during the
construction and commissioning stages. In National Oilwell (UK) Ltd v Davy
Offshore Ltd [1993] 2 Ll Rep 583, the issue was whether a supplier had an insurable
interest in the property after it had delivered its equipment. It was argued that the
interest of a subcontractor in property other than what it supplies and constructs itself
is not in the property, but in its potential liability to the owners of such property for
loss or damage to it caused by its breach of contract or duty, and that for that reason
it has no insurable interest in the property itself. Colman J referred to Canadian
Construction Co v Imperial Oil (1976) 69 DLR (3rd) 558 to which Waller LJ has
already referred, and said (p 609) that the Supreme Court was making the
fundamental point that:
the sub-contractor, by reason of the terms of the sub-contract stood in that
relationship to all the property insured that loss of or damage to such property
caused by that sub-contractors fault could give rise to liability on his part to the
owners of the property. He therefore had sufficient relationship to the property to
found an insurable interest in the subject matter of that property insurance
policy.

116. At p 611, Colman J said:

E

The suggestion that there cannot as a matter of law be an insurable interest based
merely on potential liability arising from the existence of a contract between the
insured and the owner of the property or from the assureds proximate physical
relationship to the property in question, is in my judgment, to confine far too
narrowly the requirements of insurable interest. There is nothing in the
authorities which prevents such a relationship to the property from giving rise to
an insurable interest in the property for the purposes of an insurance on property.
In Stone Vickers v Appledore Ferguson Shipbuilders, sup., I sought to explain the
identification of an insurable interest in such multi-participant projects in the
passage at p. 301 already cited. It is no doubt true that the conventional means of
obtaining in the market insurance protection against such liability for property
damage is to take out a liability policy and for the purposes of such policy there
is no question that the insured would have an insurable interest in his potential
liability. But the fact that he has an insurable interest for that kind of risk does not
lead to the conclusion that he cannot have an insurable interest in the property
itself for the purpose of a policy on property risks. The fact that the market does
not offer such policies is neither here not there. What matters is whether, if such
a policy were effected, the assured would have a sufficient relationship with the
subject-matter to give rise to an insurable interest. In my judgment he would.
117. It is important to emphasise that the reasoning of Colman J and the Supreme
Court was not that the supplier or subcontractor had an insurable interest in the whole
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of the property because they might lose the opportunity to do the work or supply the
equipment and to be remunerated for it if the property were damaged or destroyed
(see para 65 in Deepak Fertilisers v ICI Chemicals [1999] 1 Ll Rep 387). Rather, they
reasoned that the fact that the supplier or subcontractor might be liable for damage to
the whole property was sufficient to give it an insurable interest in the whole property.
118. No reason has been advanced to justify the proposition that, as a matter of law,
an insurable interest may not be sufficiently based on the existence of potential
liability in the insured for the contingency which is the subject of the insurance.
Decisions such as NOW v DOL are criticised at paras 1-156 to 1-159 of MacGillivray
on Insurance Law (10th edition) on two principal grounds. First, it is said that they
are difficult to reconcile with established principles which inter alia require that the
subcontractors in question be able to demonstrate that they possessed a legal or
equitable interest in relation to the contract works. Secondly, it is said that they
confuse the distinction between insurances on property on the one hand, and product
liability insurance on the other.
119. As regards the first point, none of the authorities which were cited to us states
in terms that potential liability for damage to the property insured can only be covered
by liability insurance. It is true that in Deepak, this court said that, after construction
and commissioning of the plant had been completed, even if Davy had been named
in the subsequent fire policy, they would not have been covered in respect of their
breach of contract or duty under that policy, because they would have had no
insurable interest in the plant. But as against that, no doubt was expressed as to the
correctness of any of the decisions mentioned by Waller LJ at para 94 of his judgment,
or more particularly the reasoning on which they are based. The existence of a legal
or equitable interest in relation to the contract works forms no part of that reasoning.
120. As for the confusion between the two types of insurance, I refer to the fallacy
that I mention at para 114 above. Although the two types of insurance are different in
character, it does not follow that an insurable interest that is sufficient for the purposes
of one may not also be sufficient for purposes of the other. The so-called confusion
is not, in my view, a reason for holding that the potential liability for damage to
property may not give an insured a sufficient insurable interest in the property itself.
121. It is difficult to reconcile all the authorities. But it is necessary to bear in mind
the words of Brett MR in Stock v Inglis (1884) 12 QBD 564, 571:

In my opinion it is the duty of a Court always to lean in favour of an insurable

interest, if possible, for it seems to me that after underwriters have received the
premium, the objection that there was no insurable interest is often, as nearly as
possible, a technical objection, and one which has no real merit, certainly not as
between the assured and the insurer.

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122. This general approach is not furthered by drawing subtle distinctions which
serve no useful purpose. I can see no useful purpose in holding that a contractor has
an insurable interest in plant (of which he supplies only a small component) up to the
time of completion and commissioning, but not thereafter. On the facts of a case like
Deepak, the subcontractors commercial interest in the plant as a whole during the
construction and commissioning stage lies at least as much in his potential liability for
damage caused to the plant by his breach of contract and duty as in his interest in not
losing the opportunity to do the work and be remunerated for it if the plant is damaged
or destroyed by any of the risks covered by an all risks policy.
123. Unless compelled by authority to do so, I would reject the submission that, as
a matter of law, an insurable interest in a contingency based on an insureds potential
liability for that contingency cannot be covered by a policy on life properly framed so
as to embrace that insurable interest. I do not believe that any authority requires that
submission to be accepted. I would, therefore, uphold the decision of the judge on the
insurable interest issue.
124. I would add that the decision in Dalby v India and London Life Assurance Co
(1854) 15 CB 365 does not sit easily with Mr Kendricks submissions on this issue.
In that case, Anchor life Assurance had granted four life policies to a total value of
3,000 to Rev Wright on the life of the Duke of Cambridge. Several years later,
Anchor being desirous to secure and indemnify themselves to the extent of 1,000
against their liability for the 3,000 took out a policy with the defendants for 1,000
by way of cross or counter-assurance to that amount on the life of the Duke.
Subsequently, Rev Wright surrendered the four policies. On the death of the Duke,
Anchor claimed the 1,000 from the defendants. At first instance, the claim failed.
The appeal was allowed. Parke B said (p 386): At the time this policy was subscribed
by the defendants, the Anchor Company had unquestionably an insurable interest to
the full amount [sc 1,000]. The significance of this statement is clear enough. This
counter-insurance was on the life of the Duke. It was not a liability insurance. It was
not a reassurance of Anchors liability to pay. As Parke B stated at p 387, the contract
(commonly called life assurance) when properly considered was a mere contract to
pay a certain sum of money on the death of a person. This species of insurance in
no way resembles a contract of indemnity. Accordingly, it was a contract to which
the Life Assurance Act 1774 applied. It is difficult to see how Anchor had a legal or
equitable interest in the life of the Duke. It had a potential legal liability to pay under
the four policies, and that potential liability was sufficient to give it an insurable
interest in the life.
125. However that may be, for the brief reasons that I have given, I would dismiss
the appeal on the insurable interest issue. I do not wish to say anything on the section
3 issue.

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The authority issue

The facts

126. By an agreement dated 3 September 1996, Sun Life Assurance Company of

Canada (Sun Life) appointed Centaur Underwriting Management Limited
(Centaur) to act as its underwriting agent in respect of a portfolio of accident and
health reinsurance contracts with effect from 1 October 1996. By an agreement dated
19 September 1996, Phoenix Home Life Mutual Insurance Company (Phoenix)
appointed Centaur to act as its underwriting agent in respect of a portfolio of accident
and health insurance or reinsurance contracts with effect from 1 October 1996. It was
agreed between Centaur, Sun Life and Phoenix that Sun Life and Phoenix would split
every risk on a 50/50 basis. Centaur had been established by John Cackett in 1996. In
1997, Centaur underwrote four reinsurance contracts on behalf of Sun Life and
Phoenix protecting Syndicate 957 in respect of various liabilities under the Master
Lineslip Policy for the year 1997/98.
127. On 16 March 1998, Centaur gave Phoenix notice that it was terminating its
appointment with Phoenix as from 19 September 1998. The date of termination was
later amended to 1 October 1998. On 5 May 1998, Mr Cackett (acting on behalf of
Centaur) agreed as agent for Phoenix and Sun Life to renew the four reinsurances of
Syndicate 957. The period of reinsurance was in respect of losses occurring on
declarations attaching during the period 20 February 1998 to 20 February 2000
subject to annual re-signing. The slips identified the Reinsurers participating
hereon as 50% Sun Life Assurance Company of Canada and 50% Phoenix Home
Life Mutual Insurance Company.
128. On 17 August 1998, Centaur sent the Syndicate a letter concerning the
termination of its underwriting agreement with Phoenix, and enclosed a newsletter
which stated:
Centaur have given notice to Phoenix to terminate their Underwriting
Agreement to take effect from 1st October 1998.

From the 1st October 1998 Centaur are pleased to offer 100% Sun Life as our
sole Principal
129. On 26 August, Phoenix itself sent a letter inter alios to the Syndicate stating:
H

Effective October 1, 1996, Phoenix Home Life Mutual Insurance Company and
American Phoenix Life and Reassurance Company entered into agency
agreements/binding authorities with Centaur Underwriting Management Ltd. We
hereby advise that these agreements will be terminated effective October 1, 1998.

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We confirm that we shall continue to honour all obligations in respect of business

accepted prior to October 1, 1998 by Centaur on our behalf.
130. On 20 October, Monument Insurance Brokers Limited (Monument) prepared
a further reinsurance presentation on behalf of the Syndicate in respect of the three
year period 20 February 1998-February 2001. At all material times, Monument acted
as brokers for the Syndicate. Centaur agreed to extend the four reinsurances. This was
done in each case by an endorsement and, later, evidenced by a cover note addendum.
In each case, the endorsement was button stamped and initialled by Mr Cackett on 29
October. Each endorsement provided:
It is hereby noted and agreed that with effect from inception the period is
amended to read as follows:

PERIOD: Losses occurring on declarations attaching during the period 20th

February 1998.to 20th February 2001. Subject to Annual Re-signing.
D

All other terms and conditions remain unaltered.

The endorsement also provided (in manuscript) that the premium was $ payable in
12 equal quarterly instalments in arrears adjustable annually in accordance with
original premium formulae. The premium figure was inserted in each case. For
policy M98 0060, it was $5.4 million. The figure for each of the other three policies
was 2.7 million.

The issue
131. It is common ground that, to the knowledge of the Syndicate, Centaurs
authority to underwrite for Phoenix was terminated as from 1 October 1998, so that
Centaur had no authority to extend the reinsurance contracts into the period 20
February 2000 to 20 February 2001 on behalf of Phoenix. Until a late stage of the
proceedings, the Syndicate contended that Phoenix was bound by the reinsurance
contracts made on 29 October 1998, but that contention has been abandoned. The
Syndicate continues, however, to advance its alternative submission that these
contracts were made by Centaur so as to bind Sun Life as to 100%. Sun Life accepts
that it was bound as to 50%. It is common ground that Centaur had authority to bind
Sun Life as to 100%. The issue which divides the parties is whether Centaur did in
fact do so.

The decision of the judge

132. The judge dealt with the point at paragraph 130 of his judgment in these terms:
130. Mr Cackett agreed with Mr James and Mr Absalom that he would not have
written the endorsements unless he believed he had full authority to do so. But he
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said that when he wrote them he did not know that I actually addressed my
mind to exactly who I was underwriting for I was underwriting on behalf of
Centaur. I do not know that I actually would have considered whether it was for
Sun or Phoenix at the time. By 29 October Centaurs agreement with Phoenix
had terminated to the knowledge of both Mr James and Mr Absalom. The cover
to February 2000 had been written prior to termination on behalf of Phoenix and
Sun Life equally. The extension to 2001 was written after termination. Mr
Cackett thought he might have had it in mind to re-sign the cover in February
1999 as 100% Sun Life. Despite, perhaps tentative, submissions and evidence to
the contrary the extension was plainly a new contract and cannot be described as
a variation or a run-off of an existing contract even if that was a material
distinction. The only sensible construction that I think can be put on these events
is that, as Mr Fenton submitted, Mr Cackett had no authority to write any new
business on behalf of Phoenix and so could not bind Phoenix to the 2000/1
extension for 50% or at all, but equally that, as Mr Kendrick submitted, he was
not in fact writing the extension so as to bind Sun Life 100% even if arguably he
would have had authority to do so. The endorsement purported to extend an
existing cover written for both companies and as Mr James said, and is plainly
right, had Mr Cackett been writing 100% for Sun Life that would have been clear
in the documentation when in fact the opposite is the case.
At the material time, Mr James was a director of Monument, and Mr Absalom a
member of the Syndicate.
Submissions on behalf of the syndicate

133. Mr Julian Flaux QC submits as follows. The judge was right to hold that (a)
the extension of the reinsurance policies to 20 February 2001 was a new contract, and
not a variation or run-off of an existing contract, and (b) Centaur had no authority
to write new business for Phoenix after 1 October 2000. It follows that there could be
no question of Centaur writing the extension of the reinsurance contracts 50% for Sun
Life, and 50% for Phoenix. By the 29 October, both Sun Life and the Syndicate knew
that the underwriting agreement between Phoenix and Centaur had been terminated
with effect from 1 October, and Centaur had actual authority to write the extension
100% for Sun Life. It was not suggested (nor could it have been) that Centaur was
acting for any other principal than Sun Life, or that it was acting as a principal itself
or in any capacity other than as an underwriting agent for either Sun Life or Phoenix
or both of them. There was, therefore, no basis for concluding that Centaur was not
writing the extension so as to bind Sun Life for 100%. There was no other capacity in
which it could have been writing the extension, since it was plainly writing in its
capacity as an agent, and as an agent who had authority to write an extension 100%
on behalf of Sun Life.

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134. Mr Flaux submits that the words Subject to Annual Re-signing show that
there was a separate contract for each of the three years. He accepts that the effect of
the agreement of May 1998 was that Sun Life and Phoenix became contractually
committed to the two years 20 February 1998 to 20 February 2000 (even though the
endorsements signed on 5 May 1998 included the words subject to annual resigning). But he relies on these words in the October endorsements as supporting his
argument that there were separate contracts for the third year and that Centaurs
principal(s) for the third year was/were not necessarily the same as its principals for
the first two years.
135. Mr Flaux makes the point that there was no discussion in October as to the
identity of the principals on whose behalf Centaur was acting. Monument did not
purport to ask Mr Cackett to procure cover for only 50% of the risk, on the footing
that it would obtain the remaining 50% elsewhere. Accordingly, viewed objectively,
what Monument was seeking and Centaur was offering to provide was 100% cover
for the third year, and, again objectively considered, that could only be provided by
Sun Life.
136. Finally, Mr Flaux criticises the judge for taking into account Mr Cacketts state
of mind in reaching his conclusion on this issue. The state of mind of the agent in
circumstances where the agent has actual authority is immaterial. All that matters is
that the agent acts in his capacity as an agent (as Centaur did), and that he acts within
his authority (as Centaur did). Mr Flaux relies on Hambro v Burnand [1904] 2 KB 10,
26:
It is enough for us to say that it appears to be well settled in English law that the
liability of a principal on a contract entered into by his agent within the terms of
his authority cannot be affected by the unknown motives by which the agent was
actuated in making the contract.

Conclusion
137. I am unable to accept these submissions largely for the reasons advanced by
Mr Kendrick. It is clear (and indeed common ground) that the issue must be
determined objectively on the basis of the endorsements stamped and signed by Mr
Cackett on 29 October, judged against the background of facts known to the parties
at the time. Mr Flaux submits quite correctly that the motives, beliefs and
uncommunicated intentions of Mr Cackett in relation to the authority question were
irrelevant. But in my view, although the judge referred to Mr Cacketts state of mind,
it is clear that he did not rely on it in order to reach his conclusion. His reasoning was
simply as follows: (a) Centaur had no authority to bind Phoenix to the 2001 extension
for 50% or at all; but (b) Centaur did not purport to, and therefore did not in fact, write
the extension so as to bind Sun Life 100% even if it had authority to do so. Mr
Cacketts state of mind formed no part of the judges reasoning. It follows that
Hambro v Burnand is not material in the circumstances of this case.
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138. In my judgment, it is clear on the face of the 29 October endorsements

themselves that they were not intended to increase Sun Lifes line from 50%. They
were merely intended to extend the period of the existing contracts by one year to 20
February 2001 and to increase the premium accordingly. Thus, for example, the
premium for policy M98 0060 was increased by $1.8 million to $5.4 million. The
increased amount was the premium payable by 12 equal monthly instalments over the
three year period. As Mr Kendrick points out, if it had been intended to increase Sun
Lifes share of the cover to 100%, one would have expected express words to that
effect to be used, and the format of the documentation would have been different.
Instead of converting the existing contracts from two to three years, one would have
expected a fresh policy to be issued for the third year, naming Sun Life as the sole
reinsurer and identifying the premium referable to that year. But rather than doing
this, the parties agreed to use documents which expressly stated that the period was
to be amended with effect from inception to cover losses occurring on declarations
attaching during the period 20th February 1998to 20th February 2001. The
reference to the amendment being from inception (i.e. from 20 February 1998) is
entirely at odds with the notion that during the third year the policies were on behalf
of Sun Life alone, and as to 100%, when previously they had been made on behalf of
Phoenix and Sun Life on a 50:50 basis.
139. The sentence all other terms and conditions remain unaltered is another
strong pointer against Mr Flauxs argument. He submits that this is no more than a
reference to the detailed terms and conditions of the previous policies, and that it does
not identify the parties on whose behalf the new reinsurance cover was being
purportedly written or the proportions of the risk that they were purporting to
underwrite. I see no reason to construe the sentence in the restrictive way for which
Mr Flaux contends. It was undoubtedly a term of the previous policies that Sun Life
and Phoenix were the reinsurers and that they were each writing 50% of the cover,
and no more. Even if it is questionable whether the identity of the parties was a term
or condition of the previous policies, I cannot see why the percentage cover being
written by those parties was not a term or condition of the policies. In my view, it was
plainly a term or condition of the four reinsurance contracts made in May 1998 that
Sun Life and Phoenix were writing 50% each.

140. I do not accept that the words subject to annual re-signing assist in the
resolution of the issue. The significance of these words was explained in the report of
Mr Jim Hunt (the Syndicates expert witness) in these terms:
H

50. The annual re-signing provision (a procedure peculiar to Lloyds) would

have been inserted in the reinsurance slips merely to enable Syndicate 957 to
allocate the premiums and recoveries to different years of account (as required).
The Defendants reinsurance contracts did not provide for mid-term cancellation
or provide for the terms and conditions to be revised mid-term for any reason
(unless by mutual agreement), and the inclusion of an annual re-signing

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provision did not change that position. The annual resigning provision did not
require John Cackett to take any action and I understand that none was ever
taken.
141. A problem arises because at Lloyds each syndicate writes business for one
year only. It follows that provision needs to be made to cater for the situation where
a risk is undertaken for more than one year, since the members of the syndicate may
change from year to year. The elaborate nature of the procedure adopted was
described by Staughton LJ in Baker v Black Sea and Baltic General Insurance Co Ltd
[1996] LRLR 353, 358. It is not necessary to examine this, since in my view the fact
that the parties used the words subject to annual re-signing sheds no light on the
question at issue. It is common ground that on 29 October 1998, agreements were
made whereby reinsurance cover would be provided for the third year, and that,
through the agency of Centaur, Sun Life was a party to those agreements. The
question is whether Sun Life agreed to write 50% or 100% of the risk. The fact that,
for the reasons given by Mr Hunt, the words subject to annual re-signing were
inserted in the endorsement does not help to resolve that question.
142. Stripped to its essentials, Mr Flauxs argument is that, because Centaur no
longer had authority from two principals, (and because this was known to the
Syndicate), it must have committed its remaining principal to a larger portion of the
risk than previously. But as Mr Kendrick says, this is simply a non-sequitur. Centaur
did have authority to bind Sun Life as to 100%, and could therefore have done so. But
in order to determine whether it did in fact do so, it is not sufficient merely to establish
that it had the requisite authority. It is necessary to see whether it in fact exercised that
authority. The starting point for this inquiry is the language of the instrument by
which the principal became bound to the third party by the acts of the agent. Centaur
did not purport to bind Sun Life to 100% cover. For the reasons that I have already
given, there is nothing in the endorsements of 29 October which indicates that
Centaur exercised the authority vested in it to bind Sun Life 100%, and there are a
number of features of the documents which point strongly the other way.
143. For these reasons, I conclude that the judge reached the correct conclusion on
the authority issue, and did so for the right reasons. I would dismiss the Syndicates
appeal on this issue.

Ward LJ:
Some preliminary observations

144. First, there is no merit in this appeal. The facts are quite remarkable. For some
time prior to 1994, the Lloyds Syndicate 957 had satisfactorily insured Steamships
liabilities to its members under its Rules, including the members liabilities for loss of
life, personal injury or illness of persons occurring on or in relation to vessels entered

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with Steamship. In 1994 Lloyds announced changes to its Risk Codes for the 1995
year of account, the effect of which was that for the purposes of reinsurance, the
carve-out from liability policies of the bodily injury and illness-related elements
could no longer be classified for audit purposes as personal accident insurance. This
presented obvious difficulties for the Syndicate but would have had no direct effect at
all on Steamship. The Syndicate wished to preserve the substantial premium income
it enjoyed and, with Mr Cackett as one of the moving spirits, set about devising a new
scheme which would have enabled it to treat the insurance as short-tail personal
accident insurance and not long-tail liability insurance. Steamship was persuaded to
change its traditional tried and tested liability reinsurance for this new-fangled
concept. Sun Life came on board as re-insurers for 1997/8 and renewed for 1998/2001
(though there is a separate issue about the later participation of Phoenix). Centaur
wrote the reinsurance on their behalf. Mr Cackett was by then with Centaur. When the
re-insurers began to find the business not as profitable as they had hoped, they raised
their clean hands and cried foul. They sought to avoid the obligations they had
undertaken to the Syndicate by alleging, inter alia, the lack of an insurable interest.
They wanted their money back. When Steamship began its proceedings against the
Syndicate, the response was that the same point would have to be taken in their
defence in case Sun Life and Phoenix were correct. Although it is true to say that the
Syndicate sit in the middle of this litigation wringing their hands in embarrassment,
leaving Sun Life and Phoenix to do the dirty work, we nonetheless have the
extraordinary position that those who devised the plan to serve their ends now seek to
avoid their liability under it on the basis that they failed to overcome the obstacle
staring them in the face at all times, and known to be an obstacle, that Steamship
might not be able to show they have an insurable interest in the subject-matter of this
insurance. Who, I wonder, was the splendid humorist who codenamed this
conceptual proposal Nelson? He or she presciently and ironically must have
appreciated that it might only work if one turned the blind eye. If the re-insurers and
insurers are now right, the only one to lose will be Steamship. It is hardly an attractive
stance for insurers and re-insurers to adopt. Perhaps the outsider may be permitted to
say that where the contract of insurance is supposed to be one requiring the utmost
good faith from all parties, this stance betrays the moral bankruptcy of the insurers
and re-insurers position.

145. Secondly, the approach of the court in these circumstances has been declared
by Brett M.R. in Stock v Inglis (1884) 12 QBD 564, 571 to be:

In my opinion it is the duty of a court always to lean in favour of an insurable

interest, if possible, for it seems to me that after underwriters have received the
premium, the objection that there was no insurable interest is often, as nearly as
possible, a technical objection, and one which has no real merit, certainly not as
between the assured and the insurer. Of course we must not assume facts which
do not exist, nor stretch the law beyond its proper limits, but we ought, I think,
to consider the question with a mind, if the facts and law will allow it, to find in
favour of an insurable interest
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146. Thirdly, as further encouragement to stretch the law to its limits, the editors of
Chalmers Marine Insurance Act 1906 (10th edition), p. 11 write that:
The definition of insurable interest has been continuously expanding, and dicta
in some of the older cases, which tend to narrow it, must be accepted with
caution.

I see the sense of that. Insurance business is no longer conducted in the coffee shop.
It is now a massive market and, for contracts between commercial men to be
respected, the law should march with the times. I wish, therefore, to go as far as I
possibly can to find for Steamship.
C

The Life Assurance Act 1774

147. The Act applies in this case. The long title describes it as:
An Act for regulating Insurances upon Lives and for prohibiting all such
Insurances except in cases where the Persons insuring shall have an Interest in
the Life or Death of the Persons insured.

The preamble reads:

Whereas it has been found by experience that the making insurances on lives or
other events wherein the Assured shall have no interest hath introduced a
mischievous kind of gaming. (emphasis added)

Section l provides:
From and after the passing of this Act no insurance shall be made by any person
or persons, bodies politick or corporate, on the life or lives of any person or
persons, or on any other event or events whatsoever, wherein the person or
persons for whose use, benefit or on whose account such policy or policies shall
be made, shall have no interest, or by way of gaming or wagering; and that every
insurance made contrary to the true intent and meaning hereof shall be null and
void to all intents and purposes whatsoever.

Section 2 requires that the names of the interested persons must be inserted in the
policy and Section 3 provides:
And in all cases where the insured have an interest in such life or lives, event
or events, no greater sum shall be recovered or received from the insurer or
insurers than the amount of value of the interest of the insured in such life or
lives, or other event or events.

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148. I would have thought that there is no doubt about the purpose of the Act. The
object was said by Tindal CJ in Paterson v Powell (1832) 9 Bing 320, 327, to be:
To prevent gambling under the form and pretext of a policy of insurance by
parties who have no interest in the subject matter of such assurance.

It is, however, only gaming policies which constitute the mischievous kind of
gaming: gaming in general remained lawful and wagers were enforceable at that time
and so remained until 1845.
149. Mr Boswood QC submits, to quote from paragraph 15(5) of his skeleton
argument:
Since the appellants disclaim any assertion that the PA Cover is an insurance by
way of gaming of wagering, their appeal based on the 1974 Act must, therefore,
necessarily fail.

150. I do not accept that submission. I am prepared to accept the view of Grose J
in Good v Elliott (1790) 3 TR 693, 696:
The statute evidently meant that every insurance on lives, or on any event, in
which the assured has not an interest, shall be void, whether such insurance be
effected in the form of a policy, or by way of gaming or wagering. (emphasis
added)
That is consistent with the long title which prohibits insurances except where the
person insuring has an interest in the life of the insured.

151. The correct position seems to me to be this. It is the nature of a wagering

contract that:
neither of the contracting parties [has] any other interest in that contract than
the sum or stake he will win or lose,

per Hawkins J in Carlill v The Carbolic Smoke Ball Co [1892] 2 QB 484, 491. A
policy would therefore necessarily be written interest or no interest. Such a policy
will be null and void. Yet there is no prohibition against insurances where the insurer
does have an interest in the life of the insured. In this respect I would follow Parke B
in Dalby v India and London Life Assurance Co (1854) 15 CB 365, 388, a leading
case on the subject which I will need to consider further:
This contract is good at common law, and certainly not avoided by the first
section of the l4 G. 3, c.48. This section, it is to be observed, does not provide for
any particular amount of interest. According to it, if there was any interest,
however small, the policy would not be avoided. (emphasis added)
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Indeed, as I understood the exchanges with Mr Boswood during the course of

argument he accepted that the insured had to show he had some interest in the life
insured. The only question was what kind of interest sufficed? His answer is a genuine
or reasonable expectation of some harm from some of the events covered by the
policy.
152. For me to find my answer, I need to undertake the following enquiries.

(1) What is the subject matter of this policy?

(2) If and insofar as this is a policy of life insurance, how far do the authorities go in
defining the necessary insurable interest?

(3) Can the authorities on marine/non-marine insurance be used to clarify the nature
and extent of the insurable interest for life and personal accident insurance?
(4) How far do the authorities go in restricting or expanding the nature and extent of
the insurable interest for marine/non-marine insurance?

(5) Does this policy embrace the interest which the insurers have?
The subject matter of this policy
E

153. This is a policy for personal accident and/or illness insurance. The interest
is described as:
Subject to all its definitions, terms, conditions and exclusions this insurance is
to pay benefits to the insured calculated in accordance with the Schedule of
Compensation contained in the Wording for death consequent upon Bodily
Injury; Permanent Total Disablement or Temporary Total Disablement
consequent upon Bodily Injury and/or Illness all as more fully defined in the
Wording in respect of member entries as Schedule attached.
The wording is plain:-

WE, THE UNDERWRITERS, hereby agree with the Insured, to the extent and
in the manner herein provided, that if an Original Person sustains Bodily Injury
and/or Illness we will pay to the Insured in accordance with the terms and
conditions of this Insurance and according to the Schedule of Compensation after
the claim has been substantiated under this Insurance.
154. In my judgment the meaning is not open to much argument. The subject matter
of this insurance is the death, bodily injury or illness suffered by an Original Person.
It is, therefore, an insurance on the life of an Original Person, or on the event of the

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bodily injury or illness of an Original Person. It is in that sense contingency insurance,

the contingency or the trigger to the entitlement to the benefits payable under the
policy being the death, bodily injury or illness of the Original Person. The
contingency or trigger is not Steamships liability to indemnify its member on the
happening of that death or injury or illness. I believe Mr Boswood accepts this as
common ground: see paragraph 24 of his skeleton argument and page 57 of day 3 of
the transcript of the oral argument before us.
155. Nevertheless, Mr Boswood submits that it is the existence of the Clubs
liability to its members which gives the Club the insurable interest in this
contingency. He argues that a contingent liability arising on death or accident is a
sufficient insurable interest to support the legitimacy of this insurance for the purpose
of section l of the 1774 Act. This involves a double contingency: the benefits will be
payable not simply if death or injury or illness is suffered by the original person, but
only if their death or injury or illness is also shown to have been sustained in
circumstances which render the Club member liable to the Original Person.
156. Mr Boswoods case for establishing this contingency liability element in the
policy depends on a convoluted argument as to the meaning to be given to Original
Persons. The wording defines an original person to mean:
(i) any person while engaged in any capacity on board or in relation to an
Entered Vessel as part of her complement and/or (ii) other persons while
engaged in any capacity on board or in relation to any Entered Vessel.
157. At first blush that would seem to be wide enough to cover any person, even a
stranger, who suffers a bodily injury whilst engaged on board or in relation to the
Entered Vessel. There is nothing in that definition to suggest that the original person
must be one for whose bodily injury the member is liable. Yet that is the contention
advanced by Mr Boswood. It involves an intricate trawl through the other provisions
of the wording. The Entered Vessel is a vessel entered by a Member. A Member
is:
An owner and/or (where appropriate) other person interest in any Entered Vessel
to whom the Insured has obligations under its Rules and/or terms of entry in
respect of Bodily Injury and/or Illness suffered by an original person.
158. Mr Boswood submits that there has to be an obligation arising out of bodily
injury or an illness suffered by an Original Person. If, therefore, he submits, it
emerges that there are no such obligations because, for example, it transpires that the
death or injury was one for which the Member cannot be liable or if it transpires that
the claim has been settled at a level below the deductible as between the Member and
Steamship, then the Member ceases for the purposes of this contractual scheme to be
a Member. The Entered Vessel ceases to be an Entered Vessel and the original person
ceases to be an original person.
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159. That seems to me to strain the language to an unacceptable extent. As defined,

Member on the natural and literal meaning of the definition is simply the owner to
whom the insured has obligations under the rules, that is to say, an owner who is a
member of the Club. That makes sense. Obligations is expressed in the plural, not
in the singular. It does not easily refer to the specific obligation of the liability of the
owner to the injured person on board the Entered Vessel. There are, after all, many
obligations owed by the Club to its members covering the vessel, cargo etc. Certainly
at the time of writing the insurance there were no specific obligations to any
individual person. If it were intended to cover a future event one would have expected
the definition to have provided that the insured will have an obligation rather than
has obligations.

160. For my part I cannot accept that an Original Person is confined to those
persons who will be able to establish the owners liability to them for the personal
injury sustained on board the owners vessel. If that is what Original Person means,
then it could have been said so perfectly easily in the definition of Original Person.
Moreover making the payment of benefits depend on liability being established is the
very thing this new policy was designed to avoid. Its whole purpose was to ensure that
payment of the benefits would not depend on liability.
161. There are further difficulties in the way of Mr Boswoods construction. The
insured had to notify all claims by bordereaux which were to contain details of and be
accompanied by reasonable documentary proof of various matters including:

(a) the Original Person having suffered death or disablement consequent on

Bodily Injury
(b) the date of the accident

(c) the date of the claim as recorded by the Insured

(d) details of the Bodily Injury
(e) if the Original Person has died the date of death

The benefits under the policy were to be paid within 30 days from the submission of
the bordereaux. The purpose of the scheme was to ensure that claims when made were
paid within thirty days and that there was no long-tail reserving for future liability. It
would not be open to the insured to refuse to pay on the basis that at the time a claim
was submitted it had not yet been established that the owner had obligations under
its Rules in respect of the Bodily Injury suffered by [the] Original Person. If the
benefits were not paid, Steamship could sue successfully for them. It seems to me to
be a commercially absurd construction to place on this agreement that the insurer
must pay trusting that, pursuant to clause 6 of the Wording,

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should the Insured at any time become aware that any confirmation or
information provided to Underwriters in connection with a claim hereunder is
not, or is no longer, accurate or applicable, the Insured shall immediately inform
Underwriters and at the same time return to Underwriters any amount by which
all payments exceed the amount (if any) which would actually be payable
hereunder in accordance with the accurate or applicable confirmation or
information.
162. In my judgment Original Person means anyone who suffers a bodily injury
on board or in relation to an owners vessel whether or not the owner is liable in
negligence to compensate him. The insurer can have no interest in the life of such a
stranger.
163. If a double contingency death/bodily injury and potential liability therefor
is the subject matter of the insurance as described in the policy has Steamship an
insurable interest in it?

The nature and extent of the insurable interest for life/personal accident
insurance as established by the authorities so far
164. The critical case is Dalby v India & London Life Assurance Co (1854) 15 CB
365. It is an important case helping to establish that a contract of life-assurance is not
a contract of indemnity and that the interest of the assured in the life must exist at the
time of the contract and it matters not that the interest ceased before death. The
Reverend Wright had taken four policies of insurance with Anchor Life Assurance
Company on the life of the Duke of Cambridge to the amount of 3,000. Anchor Life
wishing to limit their liability to 2,000, in turn took out a policy with the India &
London Life Assurance Company by way of a cross or counter assurance in the
amount of 1,000 on the Dukes life against the policies effected by the Reverend
Wright with them. Parke B held at page 388:
As the Anchor Assurance Company had unquestionably an interest in the
continuance of the life of the Duke of Cambridge, - and that to the amount of
1,000, because they had bound themselves to pay a sum of 1,000 to Mr Wright
on that event, - the policy effected by them with the defendants was certainly
legal and valid (emphasis added)
165. As I understand that case, Anchor had an interest in the life of the Duke
because they were under that liability to pay Mr Wright 3,000 on his death. Anchor
would for sure and certain suffer a financial loss on the Dukes death because of their
legal obligation to pay Mr Wright. The trigger for payment was the death. Because
they had a legal liability to pay on the Dukes death they had a legal interest in his life
existing at the time the contract of insurance was made. There was an existing
relationship recognised by law between insurer, insured and the life insured. Pace

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Dyson LJ, Anchors liability to pay Mr Wright under his four policies was not a
potential legal liability. It may have been a future liability judged at the operative
time the insurance with India and London Life was written, but there was no maybe
about it. At the operative time the liability to pay was certain and legally binding on
Anchor. There was a single contingency, not the kind of double contingency said to
be present in our case.
166. The case before us is different. At the time this insurance was written it was
not known whether the death as such of an Original Person would trigger the
obligation to pay under the policy because liability for the death or bodily injury had
also to be established. Thus the death merely gives rise to an expectation of loss. The
question is whether that is good enough.
167. On the present authorities that is not good enough. In Hebdon v West (1863) 3
B & S 579, the bank clerk Hebdon was given a contract of employment in 1855 for a
term of seven years at a salary of 600 per annum. At that time he owed his employer,
Pedder, 4,700. Pedder told him that during his (Pedders) life he would never be
called upon for the money. Being desirous to secure himself in the event of Pedders
death, Hebdon requested and obtained Pedders permission to insure his life to
provide against this debt and in 1856 effected an insurance with another company, not
with the Plaintiff insurers, on Pedders life for 5,000. Hebdons debt to Pedder then
increased and in 1857 he obtained the consent of Pedder to effect another insurance,
this time with the Plaintiff, on Pedders life in the sum of 2,500. At the time the
second policy was effected he could have anticipated another five years employment
which, at 600 p.a., would have brought him 3000. Pedder died in 1861 and the bank
stopped payment. The court per Wightman J held:
With respect to the insurable interest to the plaintiff, it was determined, in the
case of Halford v Kymer (10 B. & C. 724), that, unless the insured have a
pecuniary interest in the life of the insured, the policy is void by the 14 G 3, c.48,
s.1. In the present case it was contended for the plaintiff that he had two kinds of
insurable interest in the life of Pedder one, on the ground of a promise that
Pedder had made to him that he (Pedder) would not enforce the payment of any
debt that the plaintiff might owe him during his (Pedders) lifetime, and the other,
on the ground that the plaintiff was in the employ of Pedder at a salary of 600 a
year, under an agreement that the engagement should last for seven years. We do
not think that the first kind of interest in the life of Pedder, namely that he had
said that he would not enforce payment of debts due to him from the plaintiff
during his (Pedders) life, without any consideration or any circumstance to make
such a promise in any way binding, can be considered as a pecuniary or indeed
an appreciable interest in the life of Pedder. The other kind of interest, namely
that which arises from the engagement by Pedder to employ the plaintiff for
seven years at a salary of 600 a year may, we think, be considered as a pecuniary
interest in the life of Pedder, to the extent at least of so much of the period of
seven years as would remain at the time the policy was effected, which appears
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to have been about five years. This at the rate of 600 per annum, would give the
plaintiff a pecuniary interest in the life of Pedder to the amount of 3,000 which
would be sufficient to sustain the present policy, which is for 2,500 only.
168. By reason of s.3 of the Act is was then held that as the plaintiff had received
5,000 on the first policy he was not entitled to recover any more under this second
policy.
169. That decision seems to have been applied and approved in this court in
Griffiths v Fleming [1909] l KB 805, 820 where Kennedy LJ read Farwell LJs
judgment in which he concurred that:

[Section 3 of the 1774 Act] has been held to mean pecuniary interest measured
by the loss that would be suffered by the beneficiary if the life stopped at the date
of the policy. Lord Blackburn says in Wilson v Jones (LR 2 Ex 139 at p. 150): I
know of no better definition of an interest in an event than that, if the event
happens, the party will gain an advantage, if it is frustrated he will suffer a loss.
And the interest must be a legal interest, not a mere chance or expectation:
Hebdon v West; Halford v Kymer.
170. After reviewing the authorities on life assurance placed before us, I find that
the law established by them is accurately stated in MacGillivray on Insurance Law
(10th ed), para. 1-49:All previous editions of this work have provided the following good working
definition applicable to all risks under the Life Assurance Act 1774: Where the
assured is so situated that the happening of the event on which the insurance
money is to become payable would, as a proximate cause, involve the assured in
the loss or diminution of any right recognised by law or in any legal liability there
is an insurable interest in the happening of that event to the extent of the possible
loss or liability. Since that Act now applies for practical purposes only to life,
accident and other contingency insurances, it has ceased to provide a useful basis
for a general definition, but we have retained the text because it emphasises the
general rule of English law that an expectation of benefit from the continued
preservation of the subject matter of an insurance does not per se create a valid
insurable interest in it.
171. Clarkes The Law of Insurance Contracts is to the same effect:

3-6. PECUNIARY INTEREST IN LENGTH OF LIFE. In cases in which there

is no interest based on natural affection (above, 3-5), the insured must have an
interest in the duration of the life insured which is pecuniary (below, 3-6A) and
legal (below, 3-6B) at the time of the contract (below, 3-6C). If so there is an
insurable interest but one limited in extent to the degree of pecuniary
involvement (below, 3-6D).
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3-6A Pecuniary interest. The interest must be pecuniary in a reasonable sense

capable of valuation in money
3-6B Legal interest. The interest must be a legal interest, not a mere chance or
expectation [Griffiths v Fleming], so that if the life drops, there is an effect on
some right enjoyed by the insured or he incurs a legal liability (below, 3-6B2).
For example, a binding promise not to enforce a debt during the life of the
creditor gives the debtor a legal interest in the life of the creditor, but a gratuitous
promise does not [Hebdon v West].
3-6B.2 Contingent liability. If the incidence of legal duty is dependent on the
duration of human life, there is an insurable interest in that life. Thus a life insurer
has an insurable interest in the life insured which justifies reinsurance [Dalby]

172. On the basis of those authorities, Steamship has no insurable interest. The
legal relationship which can give rise to an insurable interest is the Club rule that the
Club indemnify the member in respect of compensation paid by the member in
relation to that death or injury. But that depends upon the members liability to
compensate being established. Until that liability is established, the death or injury per
se creates no more than an expectation of disadvantage and that is not enough.
173. There is another difficulty which seems to me to face the insurers. If the
insurable interest arises because of Steamships potential or contingent liability to
reimburse its members, then it seems to me impossible to deny that the value of that
interest for the purposes of s. 3 of the Act is the amount of the liability actually
incurred in respect of each accident. Any excess of benefit payable under the policy
and the sum actually paid to the Original Person by the member is irrecoverable. But
that is a nigh impossible task for the court to undertake given the huge number of
claims which would have to be examined where in many cases liability has not yet
been established and will not be established for years. That task cannot be shrugged
by a resort to the genuineness of the swings and roundabouts argument that the
benefits and the liabilities would more or less equate. The difficulties created by
treating these contingent liabilities as the basis for the insurable interest militates
against this kind of contingent liability truly being an insurable interest.
Can the authorities on marine/non-marine insurance be used to clarify the
nature and extent of the insurable interest for life and personal accident
insurance?
174. I see no reason why they should not, and every reason why, for the sake of
clarity and consistency, insurable interest should bear as nearly as possible the same
meaning for all categories of insurance. In Griffiths v Fleming, two members of the
Court of Appeal did not hesitate to draw on those other authorities citing Wilson v

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Jones (1867) LR 2 Ex 139 with approval. It is inconceivable that that court had
overlooked the fact that there are differences between life and other forms of
insurance (i) that the life insurable interest has to exist at the time of writing the loss,
whereas the property interest has to exist at the time of the loss and (ii) subject to the
effect of section 3 of the Act, life insurance is not strictly indemnity insurance. These
differences do not justify the concept of insurable interest being different. In my
judgment, these other authorities in the allied fields must be examined to see what
light they throw upon the question before us.
The nature and extent of the insurable interest in marine and non-marine
insurance

175. Here there is binding House of Lords authority on the subject. The first is
Lucena v Craufurd (1806) 2 Bos & Pul (NR) 269 and the other is Macaura v Northern
Assurance Company Ltd [1925] AC 619.
D

176. There is an illuminating review of Lucena v Craufurd in The Modern Law of

Marine Insurance (vol 2), edited by D Rhidian Thomas, para. 4C. I will not set out
the complicated factual history. In giving his advice to the House of Lords, Lawrence
J set out his definition of insurable interest in property in these terms at p. 302:
A man is interested in a thing to whom advantage may arise or prejudice happen
from the circumstances which may attend it And whom it importeth, that its
condition as to safety or other quality should continue: and where a man is so
circumstanced with respect to matters exposed to certain risks or dangers, as to
have a moral certainty of advantage or benefit, but for those risks or dangers he
may be said to be interested in the safety of the thing. To be interested in the
preservation of a thing, is to be so circumstanced with respect to it as to have
benefit from its existence, prejudice from its destruction. (emphasis added)
Kerr LJ in Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211, 228, described this
passage, but omitting the italicised words, as the classic definition of insurable
interest. It is properly so regarded, at least so far as it concerns the element of
economic interest, as Professor Clarke in The Law of Insurance Contracts, para. 43A calls it.
177. The economic interest element is, however, not enough. A second element is
required, namely a legal or equitable relation to the subject matter insured. This
element was established by Lord Eldon, who rejected the moral certainty argument,
saying at p. 321:
In order to distinguish that intermediate thing between a strict right, or a right
derived under a contract, and a mere expectation or hope, which has been termed
an insurable interest, it has been said in many cases to be that which amounts to

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a moral certainty. I have in vain endeavoured however to find a fit definition of

that which is between a certainty and an expectation; nor am I able to point out
what is an interest unless it be a right in the property, or a right derivable out of
some contract about the property, which in either case may be lost upon some
contingency affecting the possession or enjoyment of the party.

At p.323 he added:
That expectation [of the insured in the case], though founded upon the highest
probability, was not an interest, and it was equally not interest, whatever might
have been the chances in favour of the expectation If moral certainty be a
ground of insurable interest, there are hundreds, perhaps thousands, who would
be entitled to insure. First the dock company, then the dock master, then the
warehouse-keeper, then the porter, and then every other person who to a moral
certainty would have anything to do with the property, and of course get
something by it.
178. That additional requirement was carried into law by s.5(2) of the Marine
Insurance Act 1906 providing:
In particular a person is interested in a marine adventure where he stands in any
legal or equitable relation to the adventure or to any insurable property at risk
therein, in consequence of which he may benefit by the safety or due arrival of
insurable property, or may be prejudiced by its loss or damage thereto, by the
detention thereof, or may incur liability in respect thereof.
179. In cases of property insurance the House of Lords in Macaura rejected the
adequacy of an expectation of harm when the insured, the sole shareholder and a
creditor of the company, was held not to have an insurable interest in timber he had
sold to the company. His interest was in his shareholding and he had not insured that
but endeavoured to insure the timber itself. Lord Buckmaster observed at p.627:
I find a difficulty in understanding how a moral certainty can be so defined
as to render it an essential part of a definite and legal proposition;

and at p.628:
Neither a simple creditor nor a shareholder has any insurable interest in a
particular asset which the company holds.
180. This case has not found much support in other jurisdictions. The Canadian
Supreme Court, among others, has declined to follow it: see the penetrating judgment
of Wilson J in Constitution Insurance Co of Canada v Kosmopoulos (1987) 34 DLR
(4th) 208. She points out convincingly that insurance companies, to whom full

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disclosure of material facts must always be given, have every ability to decide
whether or not to write the policy and if so at what premium. There may be more
social advantage from encouraging insurance than discouraging it. As she said:
Why should the porter in Lord Eldons example not be able to obtain insurance
against the possibility of being temporarily out of work as a result of the sinking
of the ships?
181. However much I might agree, it is not for me to question the authority of these
decisions of the House of Lords which stand unless and until their Lordships decide
to change the rules. I have to apply the law as it is handed down and I am forced to
conclude that the need for a legal relationship between the insured and the subject
matter of the insurance remains an essential part of marine and property insurance. It
was accepted by this court in Griffiths v Fleming to be part of the law of life
insurance. It is not for me to gainsay it.
182. It is, however, necessary to consider other developments, especially at first
instance. In Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127 the main issue was
whether the insurers had a right of subrogation to sue a sub-contractor, a co-insured,
in the name of the main contractor. Lloyd J held at p.136-137:
I would hold that the position of a sub-contractor in relation to contract works
as a whole is sufficiently similar to that of a bailee in relation to goods bailed to
enable me to hold, by analogy, that he is entitled to ensure the entire contract
works, and in the event of a loss to recover the full value of those works in his
own name.
A bailee would, of course, have a legal interest in the goods but it is not at all clear to
what extent this question was considered as such: I note, for example, that cases like
Macaura appear not to have been cited.
183. That was followed in Stone Vickers Ltd v Appledore Ferguson Shipbuilders
Ltd [1991] 2 Ll Rep 288 by Mr Anthony Colman QC as he then was. Again the main
question was of subrogation where the sub-contractor, the supplier of a propeller to
be fitted into the ship being built, was named as a co-assured of the vessel. It was held
that the supplier did have an interest in the whole contract works and accordingly
would have been entitled to sue as co-assured under the policy. Petrofina and Mark
Rowlands v Berni Inns were referred to by the judge but Macaura was not. The
approach adopted by the judge was to ask:
Whether the supplier of a part to be installed into the vessel or contract works
under construction might be materially adversely affected by loss of or damage
to the vessel or other works by reason of the incidence of any of the perils insured
against by the policy in question. If the answer to that question is in the

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affirmative there is no reason in principle why such a sub-contractor should not

also have sufficient interest in the whole contract works to be included as a coassured under the protection of the head contractors policy.
184. In The Moonacre [1992] 2 Ll Rep 501, Mr Sharpe insured a motor yacht,
formerly his, but which he had transferred to his company. The yacht caught fire and
was a constructive total loss. The insurers challenged Mr Sharpes insurable interest
in the vessel. Mr Colman QC, sitting again as a Deputy Judge of the High Court, held
at p. 512:
Let it be assumed that Mr Sharpe was indeed no more than a licensee and further
that he was subject to no duty of care in relation to the vessel, can it be said he is
in no materially different relation to the vessel than that of Mr Macaura to the
timber? I do not consider that it can. Such a submission entirely overlooks the
fact that by the two powers of attorney Roarer [the company owning the yacht]
had conferred on Mr Sharpe authority to enjoy the use of the vessel exclusively
for his own purposes. That was a valuable benefit which would be lost if the
vessel were lost. The legal relation in which he stood to the vessel was that for as
long as the powers of attorney remained he was entitled to use it for his own
purposes and to exercise over it such control as he thought fit. His powers were
such that he could even abandon it to the insurers in the event of a constructive
total loss; a relation to the goods sometimes considered decisive of the issue of
title to sue. In my judgment Mr Sharpe by reason of the powers of attorney
stood in a legal relationship to the vessel in consequence of which he would
benefit from the preservation of the vessel and, if the vessel were lost or
damaged, he would suffer loss of a valuable benefit. I therefore hold he had an
insurable interest in the vessel.
That seems to me to be a case of Macaura applied because the judge was requiring
and found a legal relationship between the insured and the subject-matter of the
insurance.
185. Then there is National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Ll Rep
582, where the by now Colman J did have all the authorities in mind yet he held at
p.611:
It is no doubt true that the conventional means of obtaining in the market
insurance protection against such liability for proper damage is to take out a
liability policy and for the purposes of such policy there is no question that the
assured would have an insurable interest in his potential liability. But the fact that
he has an insurable interest for that kind of risk does not lead to the conclusion
that he cannot have an insurable interest in the property itself for the purpose of
a policy on property risks. The fact that the market does not offer such policies is
neither here nor there. What matters is whether, if such a policy were effected,

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the assured would have a sufficient relationship with the subject matter to give
rise to an insurable interest. In my judgment he would.
I am doubtful whether that judgment can stand in the light of the decisions like
Anderson v Morice (1875) LR 10 CP 365 and Deepak Fertilisers and Petrochemicals
Corp v ICI Chemicals and Polymers Ltd [1999] l Ll Rep 387.
186. In the former important case in the Exchequer Chamber Blackburn J said at p.
621:

We need not discuss whether, under a properly framed policy, the plaintiff could
have insured this expectancy of profit. For the subject-matter of this insurance is
on rice, and though that is to be construed liberally as covering any interest in
the rice, it cannot be construed as covering an interest in profits that might arise
collaterally from a contract relating to the rise. For this it is enough to refer to
Lucena v Craufurd. The action was on a policy on ships and goods. Eight
questions were asked of the judges. The eighth, set out at p. 278 of the report, was
as to whether the Commissioners had profits in respect of which they had an
insurable interest, and then asked: Can the policy of assurance in the first count
of the declaration mentioned (i.e. a policy on ships and goods) be considered as
a policy effected on such interest of the Commissioners, if such they had, and the
same is an insurable interest? The answer of the judges is stated at p. 315:

The learned Judges were unanimously of opinion that the policy in question
could not be considered as a policy on profits, having been expressly declared
upon as a policy upon the plaintiffs interest in the ships and goods themselves,
and that if it had been intended as a policy on profits it should have been so
stated.
This we think decisive of the question; but we may refer to Royal Exchange
Assurance v McSwiney 14 Q.B. 646 as shewing how important it is, not only to
have an insurable interest, but to have the subject-matter of insurance so
described in the policy as to embrace that interest.

If the distinction had to be drawn between the rice and the profits on the rice, it is
difficult to see why a similar distinction should not have been drawn by Colman J
between the property and the liability for harm arising from the property.
H

187. Deepak is even more to the point. Stuart-Smith LJ giving the judgment of the
court which included Otton and Tuckey L JJ said:
65. In our judgment Davy (the contractor) undoubtedly had an insurable interest
in the plant under construction and on which they were working because they
might lose the opportunity to do the work and to be remunerated for it if the

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property or structure were damaged or destroyed by any of the all risks such as
fire or flood. Thereafter Davy would only suffer disadvantage if the damage to or
destruction of the property or structure was the result of their own breach of
contract or duty of care. In order to protect the contractor and sub-contractor
against the risk of disadvantage by reason of damage or destruction of the
property or structure resulting from their breach of contract or duty they would,
in accordance with normal practice, take out liability insurance or, in the case of
architects, professional indemnity insurance. what they cannot do is persist in
maintaining an insurance of the property or structure itself.
66. Accordingly we must differ from the approach adopted by the learned Judge.
He held that he could see no reason why Davy (and ICI) should not have an
insurable interest in the plant so long as they were arguably responsible in some
way for damage to it. He posed the question:
Why should not an architect or technical designer or constructor be liable to
insure himself against his liability for damages to a structure due to his fault, even
though the structure fails after its completion?
67. They could, of course, do so. This would be by means of liability insurance.
Even if Davy (and ICI) and any of the sub-contractors had been named in the
subsequent Fire Policy they would not have been covered in respect of their
breach of contract or duty under that policy.
188. There is a powerful criticism of Stone Vickers and National Oilwell in
MacGillivray at paragraphs 1-155 to 1-159. I agree with that criticism. I appreciate
that these cases have been considered by this court in Co-operative Retail Services
Ltd v Taylor Young Partnership (CA, 4 July 2000). In that case, however, the court
was once again concerned with questions of subrogation and nothing in the judgment
of Brooke LJ seems to me to deal at all with the question of insurable interest and the
test to be applied to determine whether the insured has one or not. I feel able to prefer
the views expressed in Deepak. Fatally, it seems to me, the economic interest element,
where Lawrence Js dictum is so valuable, has gained ascendancy and sight has been
lost of the need to satisfy the second part of Lucena, namely that there has to be some
legal or equitable interest between the insured and the subject matter of the insurance,
expectation of harm or benefit not being enough. Of course the insured may suffer a
disadvantage from the loss of the thing assured, but that is not, as our law stands at
the moment, enough.

Does this policy embrace the insurable interest the insured has?
189. I pose this question because it was so determinative of the outcome in
Anderson v Morice. On analysis of the policy in our case, it seems plain that the

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subject is death consequent upon Bodily Injury; Permanent Total Disablement or

Temporary Total Disablement consequent upon Bodily Injury and/or Illness. Liability
for such death or disablement is not covered. Not to cover it was the whole purpose
of the policy. Steamship undoubtedly had an insurable interest in the liabilities
incurred by their Members but sacrificed their insurance of that interest for the sake
of this new policy. If this covers life and no more than life, the question remains: is
its expectation of some harm from some of the events covered good enough?
190. It is if Mr Boswoods definition (a genuine or reasonable expectation of
disadvantage upon the occurrence of the event assured against) carries the day. I have
already exposed what I consider to be the flaw in that submission, namely that it
wrongly ignores the need for a legal relationship between the insured and the subject
matter. Yet even if I take it at face value, there can be no certain expectation of
disadvantage from the mere fact of death or Bodily Injury to an Original Person. The
potential or contingent disadvantage is that the Member will become liable to
compensate the Original Person and will then look to the Club to indemnify it under
the rules of the Club. So the fact of death or injury does not trigger the liability to pay
as it did for Anchor Life when the Duke of Cambridge died. Liability, which is a fact
apart from death or Bodily Injury is not established by death or Bodily Injury alone.
Death alone is not the proximate cause of the payment of the insurance money. It is
only the existence of the Clubs liability to indemnify its members if the member
becomes liable to the injury Original Person which gives the Club an interest in the
wellbeing of the Original Person. But that is not an interest embraced by this policy.
Conclusion

191. In summary, I reluctantly conclude that such differences as exist between life
insurance, on the one hand, and marine/non-marine insurance, on the other hand, do
not justify different concepts of insurable interest applying to those groups. If statute
and binding House of Lords authority compel for the latter category the need for a
legal or beneficial interest in the subject matter of the insurance and eschew the
adequacy of an expectation of harm or benefit, then I consider it wrong to allow a
looser concept to prevail for the former. I cannot accept that any interest in anything
is a sufficient insurable interest. I feel compelled to allow the appeal.
192. I am extremely disgruntled at having to come to that conclusion for it does
scant justice in a case of this kind. The insurers thought it was a good enough risk to
write at a premium which they dictated. They presumably thought it was an
acceptable risk to continue and I am no doubt over-cynical in assuming that it was
only when losses began to emerge that the point, which this policy was intended to
have dealt with satisfactorily, was taken. I have to struggle to find that the contract
was null and void. Why it also has to be illegal baffles me. Although Parliament has
had the opportunity in comparatively recent years to consider the Act of 1774, it may

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not be overdue to look at it again. If this case reaches their Lordships House, their
Lordships may have more power than regrettably I feel I have to change the unhappy
result which I have reached.
193. As a postscript I would say on the authority issue that I entirely agree with the
judgment of Dyson LJ.

(Appeal dismissed)
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