-v-vv wrv rv v _v w w "

w "r

Development of Insurable Interest

Before passing of Gaming Act, 1845 all the contracts of such nature
were lawful and in English law, contract of insurance were governed by
the common law. Before passing of insurance law, such contracts were no
more required to prove interest and such contracts cannot be declared
unlawful simply because they were based upon speculations. The reason
being people started insurance in the life of others where they had no
interest. To prevent such attitude in 1774, Life Insurance Act, 1774 was
passed in England. The purpose of this Act was not to stop the contracts
on speculation but to stop insurance contracts on commercial documents.
Therefore, all these contracts made on general policy form of insurance
regarded within the meaning of the Act, although strictly they were not
insurance contracts. In other words such contracts fulfilling all the
requirement of insurance were not regarded as insurance contracts if they
had not been made on printed form of Insurance. This was the state of
affair before 1845 when English Gaming Act was passed which for the first
time made all such contracts void being wagering. This Act says :
"All such contracts or agreements either in promise or in writing
are null and void, if they are made in the form of wager or
speculation."
The wager life insurance contract rule, applies where a policy has been
taken out by, and the premiums paid by a person who has no insurable
interest. -

Law in India has been explained in Gherulal Parekh v. Mahadeodas,

as "any agreement within the parameters, which are against public policy
or Opposed to it will be struck down and the courts will refuse to, enforce
them. Any agreement which goes against or has the tendency of going
against prevailing social values, public interest or public .welfare, is
regarded as opposed to public policy."
An express or implied term of the contract itself may require that the
insured should have an interest in the subject matter at the time of loss
as for instance in a policy of indemnity. In such a case, if the insured has

1. Fender v. Mildmay, (1938) AC. 1.

2. William'v. Baltic Insurance Association of London, (1924) 2 KB .282.
3. Bersford v. Royal Insurance Ca, (1938) AC 586.
4~ Good v. Ibliot, (1790) 3 TR 693, Patterson 1 Powell, (1832) Wing 320.
5- Cook v. Field, (1850) 15 QB 460.
- AIR1992so
30 731.AmritEmmi Co.Ltd.v. StateofPunjab,
$351959
 0 General Principles of Law of Insurance [Chapter II]

no interest at the time of loss, the claim will necessarily fail. This is the
interest required by the policy or the contractual interest. Even if this
wanting, the insured may enforce the contract where insurers do not raise
this as a defence. Such interest is required by the British Life Assurance
Act, 1774, or the Indian Marine Insurance Act, 1906 or by implication of
Section 30 of the Indian Contract Act which merely declares that all
contracts by way of wager are void. This is the interest required by statute
or the statutory interest. If this is absent the insurance is illegal and void.1
In an action upon such contract, if the insurer does not raise the plea of
Want of interest, nevertheless the court of its own motion may refuse to
enforce the contract.2 Courts however lean in favour of the existence of 3
Valid interest as far as possible so as to render the contract enforceable.a
It has also been held in some cases that there is nothing illegal about the
insurerpayingon a policywithoutinterest,asthe objectionor want of
insurable interest is purely technical and has noreal merit as between the
insurer and the insured.
Insurable interest is considered as a property in contemplation of law
and it is protected under insurance law whether it be life, fire or marine
or any other. It is also considered as actionable claim transferable to the
same extent and within the same limitations.

Definitions :
In the words of Riegel and Miller, "An insurable interest is an interest
of such a nature that the possessor would be financially injured by the
occurance of the event insured against."
It the words of Mehr and Cammack, "In property insurance, insurable
interest is any financial interest based upon some legal right in the
preservation of the property. In life insurance an insurable interest is any
reasonable, expectation of financial loss arising from the death of the person
whose life is assured".
According to Patterson, insurable interest is a relation between the
insured and the event insured against, so that the occurrence of the event
would result in substantial loss or injury of some kind to the insured.5
According to Rodda, "an interest of such a nature that the occurrence
of the event insured against would cause financial loss to the insured."6
quoteddefinitionof insurableinterest is that of
The mostcommonly
Lawrence J., in Lucena v. Craufurd,7 in which it was held that, "A man is
interested in a thing to whom advantage may arise or prejudice may happen
from the circumstanceswhich may attend it and whom it imported that
as to safetyand otherqualityshouldcontinue,to be interested
its condition
I. Anctill v. Manufacturers Life, (1899) AC 604.
2. Gadge v. Royal Exchange, (1900) 2 QB. 214.
3. Cokerv. Bolton,(1912)B.K.B.315, Digbyv. GeneralAccident,(1943) AC 121'
4. Halelay v. Livergool Victoria Friendly Society, (1918) 88 KB 257.
5. E.W. Patterson, Element of Insurance Law, p. 109.
9. W.H. Roddo : Fire and Property Insurance, p. 22.
7. (1806) 2 B & P (N R.) 269 (H.L.).
vChapwl [II] Principlesof Insurance 4!

in preservation of a thing, is to be so circumstanced with respect to it u

to have benefit from its exiStence, prejudice from its destruction."
To put in short in his Lordships words in the same case : "interest
means, if the event happens, the party will gain advantage, if it is
frustrutated, he will suffer a loss".
It should be borne in mind that insurable interest is the legal right
of the insured in insurance. Insurance does not protect the insured property
from loss or advantage, but protects the insurable interest in the property.
In a very recent case of New India Assurance Co. Ltd. v. M ls T.T.
Finance Ltd.,1 the High Court of Delhi has explained the concept of
insurable interest quoting some significant definitions given in earlier
decided cases. In this case the High Court has thrown a significant light
saying that even a financer under a hire-purchase agreement will also have
insurable interest in the property of the loanee.

Insurable interest arises with or without ownership

In the above case before the Trial Court and before this Court of High
Court there were two principal issues on which arguments were addressed.
The hrst was with respect to the stand of the appellant of lack of privity
of contract of the respondent/plaintiff with the appellant and the second
was of the respondent/plaintiff being not the owner of the insured vehicle
and hence not having an insurable interest in the vehicle with respect to
which .claim was tiled.
In order to appreciate the concept it is necessary to give the facts of
the case : that the respondent/plaintiff a finance company, entered into a
lease agreement with one Mr. J agdish Prashad for a Bajaj Matador Tempo
No. DL-IL-A-7297 (make 1994) vide agreement dated 17.2.1994 and there
by financed the vehicle. According to the insured/respondent/plaintiff since
lease installments were not being paid by Sh. Jagdish Prashad, the vehicle
was taken back from him and thereafter given to the respondent No. 2,
Sh. Prempal Kashyap under a hire-purchase agreement dated 5.4.1995. The
vehicle was involved with an accident on 28.4.1995 resulting in a total loss
of the vehicle. The respondent/plaintiff therefore preferred the claim against
the appellant/insurance company/defendant and which having been rejected,
the respondent/plaintiff filed the subject suit.
The relevant issues framed by the Trial Court were :
1. Whether there was privity of the contract between the defendant
(now appellant) and the plaintiff.
2. Whether the plaintiff is entitled to any insurable interest in the
property being fmancer under hire-purchase agreement (now
respondent T.T. Finance Ltd.).
The Trial Court held that there was privity of the contract and
insurable interest of the plaintiff being fmancer of the agreement. In appeal
the High Court upholdingthe views of the Trial Court gavejudgementfor
the respondent/plaintiff insured against the appellant/defendant/insurance
1. AIR 2011 Del 121.
 42 General of Lawof Insurance
Principles [Chug-I

company,
As to questionwhat in insurableinterest the High Court held that;
The questionis what is an insurable interest? Insurable interest in
DOtComplete
ownership.It need not necessarilyeven strictly be title and
interestin the objectinsured.Insurable interest qua a vehicle policyis
suchinterestin the subjectmatter of insurance whereby the insured 0811
seekto recoverthe monetaryclaim for any damage or loss to the insmed
vehicle.
The Supreme Court in the case of New India Assurance Co. Ltd v
3N. Sainami,2
has giventhe meaningof insurable interest as under :
"The interest of the insured must exist in the case of marine
insurance at the time of loss and the assured must have some relation
to or concernin the subject of the insurance. The service which the
insurer offers is with reference to the goods and the insurable interest
has to be in respect of the goods. To put it in other words insurable
interest in property would be such interest as shall make the loss of
the property to cause pecuniary damage to the assured."
The legal principle applicable qua meaning of an insurable interest
will remain the same whether for marine insurance or for motor vehicles.
Themeaningof insurableinteresthas beenfurther expoundedby a Divisio'n
Bench of Jammu & Kashmir High Court in the case of M ls. Oriental
Insurance Company Ltd. v. Sham La! Mateo,a wherein the Division Bench
and adapteda paragraph h'om Banerjees Law of Insurance and
reproduced
the same reads as under :
It may also be advantageousto clarify any cobwebs in this regard by
quotingthe following from BanerjeesLaw of Insurance ;
passage
"Insurable interest is not synonymous with legal interest. Thus,
an interest on an agreement to purchase is an insurable interest. A
warehouseman who has assumed the obligation to insure the goods
has an insurable interest. Even the interestof
whilein his possession
a baileeis sufficientto establishan interest and an unpaid vendorof
goodsas an insurable interest in the property. Similarly, a husband
hasan insurableinterestin his wifes property and a wife in turn has
an insurableinterest in the property of her husband. So also a landlord
may insure his rent which he may lose through the destruction of his
premises, a tenant of premises has an insurable interest founded upon
the beneficial enjoyment of the premises, which he loses in the event
of their destruction so also a tenant renting a furnished house has an
insurable interest in the furniture. Likewise a creditor whose debt is
by legal or equitable mortgage upon any specific property has
{Secured
mi insurable interest in the prOperty mortgaged. A bankrupt remaining
in possessionof his estate has an insurable interest in it. A man may
#lso insure the profits which he expects from some undertaking or

W 124
1' T11PM,
NR 1997 so 2938.
 ChapterIII] of Insurance
Principles 43

adventure of from the carrying on a business."

Another relevant judgment is the Division Bench decision of the
Andhra Pradesh High Court in the case reported as United India Insurance
Company Ltd. & Ors. v. Sri Balaji Dental Laboratory.1 Following
observations of the said judgement are relevant :
"The next question is whether the respondent has an insurable
interest in the property. The admitted fact is that the respondent is
a lessee and he has mortgaged the leasehold interest to the
Corporatioh. Learned counsel for the appellant contended that he being
not the owner of the property has no insurable interest in the premises
insured, therefore, they are not entitled for the insured amount. In
this context reference may be made to the judgement of the Gnana
Sundaram v. Vulcan Insurance Co. Ltd. The said judgment explains
the meaning of "Insurable interest". The said judgment reads as
follows :
"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 imported that its condition as to safety or other quality should
continue. Interest does not necessarily imply a right to the whole or
part of the thing nor necessarily and exclusively that which may be
the subject of privation, but the having some relation to, or concern
in the subject of the 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. And
where a man is so circumstanced with respect to matters exposed to
certain risks of dangers as to have a moral certainty of advantage or
benefit but for those risks and 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.
Only those can recover who have an insurable interest, and they
can recover only to the extent to which that insurable interest is
damaged by the loss. In the course of the argument, it has been sought
to establish a distinction between a fire policy and a marine policy. It
has been urged that a fire policy is not quite a contract of indemnity,
and that the assured can get something more than what he has lost.
It seems to me that there is no justification in authority, and I can
see no foundation in reason for any reason, for any suggestion of that
kind. What is it that is insured in fire policy? Not the bricks and the
materials used in building the house, but the interest of the assured
in the eubject~matter of insurance not the legal interest only, but the
beneficial interest."
From the passages referred to above, it in clear that the interest need
not be an interest of ownership. It can be an interest other than the
.ownenhip also. The facts of the said case are that a suit was tiled for

,1. 103 (2001) Com Cu 58, 2000 NBC 932.

a General Prlndploo of Low 0! Insurance [Chapur 1

recoveryof an amount under an insurance policy in respect of a house,and

the objection that was raised by the insurance company was that thg
plaintiff in only an agreement holder and since he has no right of ownership
ho is not entitled to claim the amount insured. In that context, it washeld
that an interest need not necessarily be a right to the whole but can beg
isinterested
Aperson
part. ofathing
inthepreservation and such intere
The learned
can be insured. insurer can
Judges also held that the recover
Q11insurable interest and they can recover only to that extent to which
that insurable interest is damaged by the loss and not the amount insured
3 such. In other words, the insurer is entitled to the actual loss or damage;
sustained and not the amount insured. This judgment is an authority fol.
the proposition that insurable interest need not necessarily be whole
interest, it can also be a part of the interest. In our considered view, the
the property is transferred and the lessee has interestin
right 30 GTU'O)
part in the lease-hold property and he is entitled to continue in possession
as long as the lease subsists. His pcssession should to be disturbed so long
as the lease subsists. To enjoy peaceful possession of the premises which
he has taken on lease is an interest and it can be said that he has insurable
interest in the property. We therefore, are of the view that the leasehold
interest of a lessee is an insurable interest in the property that is insured.
The finding of the High Court was that there was insurance interest
in favour of insured/plaintiff with respect to insured vehicle. Hence insurer
was liable to pay for loss of vehicle.
It should be noted that the governing principle of insurance is that it
is the insurable interest which makes the contract of insurance valid and
enforceable otherwise it would be a contract of wager. This insurable
interest must be genuine and enforceable. Mere hope of acquiring an
interest is not enough. It has been said that a party has an interest in an
event if he will gain an advantage if it happens and suffer a loss if it does
not happen. But the advantage or loss must depend upon some right
whether contractual or proprietary, legal or equitable, which is enforceable
in courts. Thus, a husband who is living with his wife has an insurable
interest in her property for he is by law entitled to share her enjoyment
in it and she, no doubthas a similar insurable interest in his propertyas
their rights and duties are largely reciprocal. But a father has no insurable
interestin the possiblepersonalliability of his child in tort. Since natural
love and affection does not give such an interest in law," nor does the
general concern of a trade union in the welfare of its members give it an
insurable interest in their losses or liabilities. On the same principle 9
share holder has no insurableinterest in the assets of a company.While
the same share holder'1n one man companywill suffer a certain detrimeni
in the event of the lossof the companyspreperty, he has no insurable
interest ofit ashispossession
in it evenif he1: in possession is notcoupled
With my legal right to omoythe use of the property and in his capacity
u Ihare holderho is merelyan unsecuredcreditor of the company.M0
of thedetriment
probability is notenough andonecannotinsurea thin?
#10le becausethereis a chance benefitmay81
that somecollateral
Chapter III] Principles of Insurance 45

should it not be lost. A shareholder has no interest in his company as

liability for wrongful acts. But there is nothing to prevent him from insuring
his own shares, in which he has an insurable interest, against loss suffered
owing to the failure of an adventure in which the company is engaged,
however difficult the calculation of the loss and in Wilson v. Jones,1 the
adventure of laying down a submarine cable was insured by a shareholder
in that way. On this basis a contingent buyer of goods, Who has not obtained
property, risk or possession, has no insurable interest in the goods
themselves even though he expects at a future date to acquire them,
although he does have sufficient interest to maintain a policy against
anticipated loss of profits.2
A person can be said to have insurable interest in the subject matter
insured where he has such a relation or connection with or concern in,
such property that he
(i) will derive pecuniary benefit or advantage from its preservation
or,

(ii) will suffer pecuniary loss or damage from its destruction,

termination or injury by the happening of the event insured
against.

Kinds of Insurable interest

It is the interest which is protected by a contract of insurance is known
as insurable interest. This insurable interest may be :
(a) Contractual, and
(b) Statutory.
Contract of insurance in general term is a indemnity contract, unless
there is some proprietary interest which is sought to be covered by the
policy, there is no loss suffered and in such type therefore the contract by
its very nature requires some interest to be involved in the subject matter
and this is called contractual and statutory insurable interest.
The other cases of insurance where the loss in not necessarily to be
proved for example, a fire insurance contract is a contract to indemnify the
insured subject to the policy amount and if the assured has no interest in
the property by its damage, he suffers no loss and so he cannot recover
anything. The contract is perfectly valid though nothing is recoverable
under such a contract. In life insurance the contract is to pay a certain
sum of money to the insured on the happening of an event and so the
contract does not require an insurable interest. So it led to the practice of
insuring the lives of public, men in whose life the insured had no interest.
To condemn and prevent this practice the Life Insurance Act, 1774 was
passed making insurable interest a statutory requirement. The Marine
Insurance is regulated by the Marine Insurance Act, 1906 in England. So
the interest required by these Acts to support an insurance is called
Statutory insurable interest." This has been explained in Maegan: 'v.

T1. (1867)LR 2 Ex: 139.

3. Calinuam's Law of the Insurance, 7th Edn, 1997, pp 59, 61, 62. 63.
46 GeneralPrinciples
of Law 01ms... m.--
[Chapmb
I

Northern Insurance Co.1 This is a leading case on insurable interest,

this case one Macaura insured timber against fire. He sold the same
ofwhich
company hewasa substantialshareholder.
Thereafter
most
ofth
by fire. On claim for loss due to fire, it washeld
timberwasdestroyed
that the insured Macaura had no insurable interest.

Insurable interest as a public policy of law :

Insurableinteresthas now required statutory requirement for a Valid
contractof insurance, so a public policy of law. Lord MacMillan observed
ofpublicpolicythat a personwho entersinto contractu
"It is a principle
Engagementsshould be required to fulfil that."2 Insurable interest is sine
Quqnon for a valid contract of insurance. Now it plays significant role in
determininga valid and enforceable contract of insurance. Every contraCt
0f insurance requires an insurable interest to support it, otherwise it Will
be invalid.
The case of Macaure v. Northern Insurance Company,3 is a good
illustration. In this case one Macaura insured timber in his estate against
fire. He sold the timber to a company of which he was the sole substantial
shareholder. Thereafter, most of the timber was destroyed by fire and he
demanded that he should be indemnified. The insurer succeded in refusing
to comply with the demand. The insured had no statutory interest because
as a shareholder he had no insurable interest in the assets of the company
though he too would suffer loss on the company loosing its property, nor
had the contractual interest under the policy because he could not ever and
prove interest at the time of loss. Though the insured had no statutory
interest, the policy was held to be not a wagering contract. "No gaming
contract was ever made, but this was a contract of indemnity under which
the assured must ever and prove interest at the time of the loss. This is
part of the law of insurance,quite independently of the Gaming Act, though
the consequence of failure to prove interest is the same namely, that the
policy is unenforceableby uninterested assured" said Lord Sumner.4 A
shareholderhas no insurable interest in the property of the company hence
contract will not be effective.

Time or Duration of Insurable interest

It is to be noted here that insurable interest has not been defined in
the InsuranceAct, 1938 but in respect of Provident Societies under Section
68 it has been definedbut by the Insurance (Amendment) Act, 1950, Section
68 has been repealed. Now, any provision or section of the Insurance Act,
1938 does not refer the term insurable interest. Section 5 of the English
MarineInsuranceAct, 1906and Section7 of the Indian Marine Act, 1963
defines insurable interest only with reference to marine insurance.
The time when the insurableinterest must be present varies with the

1. See infra.
2, Beresford v. Royal, (1938) AC 1.
8. (1925) AC 619 ; (1925) All ER Rep. 51.
4. (1925) AC 819.
Chapter 111] Principles of Insurance 4,

nature of insurance contracts. The question is whether insurable interest

should exist at the time when the contract is formed or at the time when
liability arises. In life insurance the presence of insurable interest is
necessary at the commencement of the policy although it is not necessary
afterwards, not even at the time of occurance of the risk. So it should be
there in life insurance when such contract is formed. Since the life
insurance is not strictly contract of indemnity so where a creditor insures
the life of the debtor, the policy continues even after the debt is paid
because the subject matter of insurance is the life of the debtor and not
the debt. Similarly, when a husband insures the life of the wife or
vice-versa, notwithstanding the dissolution of the marriage, the policy
subsists, as here also the subject matter of insurance is the life of the other
spouse and not the marriage.
In case of the marine insurance. Section 8 of the Marine Insurance
Act, 1963 says :
(1) The assured must be interested in the subject matter insured at
the time of loss. Though he need not be interested when the insurance is
effected :
Provided that, where the subject matter is insured "lost or not lost,
the assured may recover although he may not have acquired his interest
until after the loss, unless at the time of effecting the contract of insurance
the assured was aware of the loss, and the insurer was not.
(2) Where the assured has no interest at the time of the loss, he
cannot acquire interest by any act or election after he is aware of the loss.
This provision makes it clear that in case of marine insurance it must
exist at the time of loss, though not when the insurance is effected.
In case of fire and motor insurance it must exists both at the time of
formation of contract as well as at the time of loss. It has been decided in
National Insurance Co. v. L.I.C. Dhamin,1 that in case of Motor Vehicles
Insurance who was the owner at the time of inception of the contract and
at the time of loss if the clairhant was not the owner of the car, he cannot
be entitled for assured money. The same principle of law was laid down in
Chandmal Jain v. General Insurance Society.

Co-sharer of the Property : Insurable Interest

In India
United Insurance Co. Ltd. v. Parmeshwari Sawhney, the
respondent holding 1/4 share in the insured property viz. Sawhney Mansian'
made insurance of whole property 3/4 were held by her two daughters and
a son. The appellant Company accepted the premium and insured property
for an amount of Rs. 70,68,000. The court held that it is equally settled
that a person having partial interest in the property is entitled to ensure to
the extent of full value of the property rather than to the extent of his actual
interest. It is also not necessary that all the co-sharers should become a
1. (1995) CPJ 14 (Haryana); Kishan Chand & others v. United India lawman:
Co. Ltd, See also Macaura v. Northern Assurance Co. Ltd, (1925) AC 619.
2. AIR 1959 Cal. 558.
3. AIR 2010 J & K 138,
 48 General Principles of Law of Insurance [Chapter III

party to the insurance policy. Once the insurance company receives

premium for the whole property from the insured, it makes itself liable to
indemnify the loss to the property and not to the extent of share of the
cosharer who steps forward to insure the property. One or more co-sharer
may obtain the insurance policy not necessarily restricted to their share in
the building and may obtain an insurance policy for whole of the building
property. What is important is not number of co-sharers who have come
forward to obtain insured property but extent of property that has been
brought under insurance cover.

Nature of Insurable interest

The governing principle of insurable interest is that the interest must
be enforceable one. Mere hope of acquiring an interest is not enough. The
leading case on this point is Lucena v. Crawfural,1 When it has been held
that the interest must by enforceable at law. Mere hope, however strong it
may be, is not sufficient. Further expectation though founded on highest
probabilities is not interest and it is equally not interest.
In Moran Galloway v. Uzielli,2 it has been observed that the definition
of insurable interest has been continuously expanding and dicta in some of
the older cases which would tend to narrow it, must be accepted With
caution. A study of modern cases reveals that a vested or proprietary
interest is not essential but such interest may be merely possessory,
inchoate, contingent, defeasible equitable or expectant. In respect of
expectant interests, there must be a subsisting right or title in the insured
at the time of loss with respect to subject out of which the expectancy
arises, but a mere expectation of proiit Without any interest in the goods
will not however be sufficient to constitute insurable interest.3 The study
of mordem cases reveals that this term be liberally interpreted. It is not
always the legal interest or a full interest that is required by the courts
but it should be such that it would be sufficient if it is recognised by court
of law or equity as such interest.
Having in view the definition and nature the following principles
emerge out :
(i) The interest must lawful in other words it should not be illegal,
unlawful, in moral or opposed to public policy.
(ii) Simple love and affection alone cannot constitute insurable
interest. There must be something more from sentimental feeling
or interest
(iii) It must be a right in property which is subject matter of
insurance or a right arising out of a contract in relation to the
pr0perty.
(iv) The interest must be pecuniary, i.e., capable of estimation in
terms of money. The peril must be such that its happening may

1. Supra
2. (1906) 2 KB 565.
8. LucenaV Craw/itrd, (supra).
 I
.-

mm m] Principlesof Insurance 49

bring upon the insured an actual or deemed pecuniary loss. Mere

disadvantage or inconvenience or mental distress cannot be
regarded as an insurable interest.
(v) should not be limited to absolute ownership of property but
It
may arise in other ways also. It may be based on ownership
whether absolute, partial of limited legal or equitable for example,
in joint owners, mortgagor and mortgagee, trustee and
beneficiary. Even mere lawful possession alone such as that of a
lessee, bailee, or carrier of goods or owner of warf or ware house
can give insurable interest. It may also found an insurance
contract, as in the case of reinsurance by the insurer.
(vi) In life insurance close relationship such as husband and wife,
which cannot be strictly described as pecuniary, parent and child,
employer and employee, creditor and debtor, partners of a firm,
may also give insurable'interestin the life of each other.
Presence of Insurable interest
The presence of insurable interest differs in different types of
insurance contracts.
(1) Life Insurance.Insurable interest must be present in the
insured at the time when the policy is taken. It may or may not be
necessarily present at the time of claim. In the case where the policy is
assigned insurable interest need not be present.
(2) Fire InsuranoaIn fire insurance the insurable interest must
be present at both times, when the policy is taken and also at the time of
happening the event to claim the loss from the insurer. The interest in the
property must exist both at the inception of the policy as well as the time
of the loss. If it does not exist at the commencement of the contract it
cannot be the subject matter of the insurance and if it does not exist at
the time of the loss, he suffers no loss and so needs no indemnity. Thus,
where he sells insured property and it is damaged by fire there after, he
suffer no loss.
(3) Marine and all other miscellaneous insurance.In all these
insurance, the insurable interest must be present at the time of happening
the loss insured against. It is not necessarily be present at the time of
effecting policy. The Marine Insurance Act, 1963 provides as to insurable
interest under Sections 7 and 8.

Life Insurance & Insurable Interest

The doctrine of insurable interest was recognised in English law only
in latter half of the 18th Century. The Life Insurance Act, 1774 requiring
insurable interest as a conditionfor the validity policy.This Act lays down
following three rules :
(i) In every contract of insurance, the insured or the person for
whose benefit the insurances was affected must have an interest

1- Grifiiths v.
Flaming, (1909) 1 KB 805.
80 GeneralPrinciple: of Law of Insurance [Chapter 111

in the lubject matter.

(ii) The person fbr whose benefit the policy was effected shall not
recover more than the value of such insurable interest, and
(iii) Every policy shall contain the name of the person interested or
for whose benefit the policy was taken. .,
In life policies. having relationship by marriage, blood or adoption»by
contractual relationship and by statutory duty have been recognised as
having insurable interest. It is not necessary that expectation of advantage
or beneht should always be capable of pecuniary estimation.1
There is no provision either in the Insurance Act, 1938 or the Life
Insurance Act. 1956. Section 68 of the Insurance Act, 1938 provides
insurable interest but now it stands abolished by the amendment in 1950.
But by virtue of Section 30 of the Indian Contract Act every contract of
insurance requires insurable interest otherwise such contract would be void
being wagering contract.
In life policies, the following persons have been recognised having
insurable interest and they may conveniently be considered under three
main groups, namely :
(a) relationship by marriage, blood or adoption,
(b) relationship by contracts,
(c) relationship under statutory duty.
Above relation exists between the following :
(i) Husband and wife.
(ii) Parent and child.
(iii) Creditors or debtor to the extent of debts.
(iv) Surety and principal debtor.
(v) Partners of a partnership in the lives of co-partner.
(vi) Employers and employees.
(vii) Landlord and tenants.
(viii) Shareholder: and company.
(ix) Master and Servants.
(2:) Principal and Agents.
(Xi) Trustee and Co-trustee.
(i) Husband and Wife
Every person shall have insurable interest in his own life and property
without any limitation. Thus, every person is entitled to insure his life and
claim insured amount under the policy. If he dies, his nominee or
dependents are entitled to policy money.
It in now well settled law that a husband has insurable intereét in
the life of the wife and vice versa. It also forms an exception to the general
rule that interest necessary to support the insurance another persons life

.7 . Warnochvaavia. (1882) 104 US 775.

 Lnupuu nu Principles of Insurance

must be capable of expression in terms of money or pecuniary interest.l

Dr. 85. Hubner observes that life insurance is a husbands privilege,
a wifes right and a childs claim.2 The rule that a wife has an insurable
interest in the life of her husband was recognised earlier on the supposed
reason that she depends on him. There was difference of opinion on the
other question whether a husband has an insurable interest in the life of
his wife. After the passing of the English Married Womens Property Act,
this question has been settled by its Section 2, that a husband is presumed
to have an insurable interest in the life of his wife. This was held in Real
v. Royal Exchange Assurance Co.,3 that husband and wife are presumed to
have an insurable interest in the life of the other. In this case a policy was
effected by the husband on the life. of his wife with the intention to defraud
the creditors. The premium was paid by the husband. It was held that the
policy was valid and the creditors were entitled to receive from the policy
amount a sum equal to the premium paid.
Grimths v. Fleming,4 is a notable question on this point. In this case
Griffiths and his wife signed a proposal form for a joint life policy on their
. lives for £500 and both contributed towards the premium. The wife
committed suicide and the husband claimed the sum assured. The insurer
alleged that at the time of taking policy the husband had no insurable
insurance in his wifes life as required under the Life Insurance Act, 1774.
Vaughan Williams, LJ held :
The husband has an interest in his wifes life which ought to presumed
and that it is unnecessary to go, into the evidence to show any pecuniary
interest of the husband...

Farewell, L.J. also agreed with this and said :

"I have come to this conclusion in the constriction of the. Life
Insurance Act, 1774 itself... A husband is no more likely to indulge in
mischievous gaming on his wifes life than a wife on her husbands."
It is also to be noted that presumption of interest between husband
and wife arises only during the period of coverture and the policies taken
during that period Will be valid and they will continue to be operative even
after the dissolution of marriage because insurance is made for life not of
marriage. For example, A takes out a policy of the life of his wife B and
subsequently even if they are divorced, still the policy continues to be valid.
But mere expectation of marriage will not create such interest. Thus, A
takes out a policy on the life of B when he proposes to marry, the policy
is not valid for want of insurable interest at the commencement of the risk,
that is, at the time when the contract is made.

(ii) Parent and Child

It is well established in common law that mere love and affection is
not sufficient to constitute on insurable interest. If a parent has any
kn

1- Griffiths v._ Fleminig, (1909) 1 KB 805.

2. S.S. Hubner : Life Insurance P.D.
3~ (1795) Peake 70 (Add. Cases).
S upra,
 52 General Principles of Law of lmmruuu ¢uuup|0l m

pecuniary interest in the life of the child, whether natural or adopted h.

can take out an insurance policy on the life of such child. A son or daughter
whether natural or adopted in presumed to have an insurable interest in
the life of the parent because they depend on the life of the parent for
support whether natural or adopted. 0n the basis of intention an adoption,
the insurance is not valid. Here the word parent include both mother and
father. The law laid down in the case of Griffiths v. Fleming, will equally
apply to father and son : An illegitimate child have been held to have
insurable interest without proof of any pecuniary interest.
Here it should be noted that this blood relation does not go beyond
the above relationship and it has been held that such interest cannot be
presumed in other cases like uncle and nephew, brother-in-law, step brother
and sister3 a foster child3 and an illegitimate son or daughter.|
The persons who are entitled to maintenance under the law are very
well covered under insurable interest.

Contractual Relationship

(iii) Creditor and debtor

The creditor has insurable interest in the life of the debtor because
the chance of obtaining repayment of debt materially depends upon the
continuance of the life of the debtor. The creditors interest is limited to
the extent of the valuee of the debt and not more than that. But a debtor
has no such interest in the life of the creditor.
A policy on the life of the debtor will not cease to be operative even
though the debt has been satisfied or the debt become time barred before
the debtor dies. An unsecured creditor cannot insure his debtors property
because his right is only against the debtor personally. He can however
insure the debtors life.

(iv) Surety and principal debtor

On this principle alone, a creditor may insure the life of a surety. A
surety has insurable interest in the life of surety as well co-surety. So in
case of guarantee, creditor has such interest. in the life of debtor, surety
and co-sureties. A mortgagor may also have interest in the life of mortgagee.
Here it is to be noted that a person who is in the position of creditor
only has insurable interest in the life of the person in the position of the
debtor and not vice versa.

(v) Partners in the lives Co-partners

In Powellv. Dewy,°,it has been held that one partner has no insurable

1. (1909)1 KB. 805, 820.

2. Edvin Patterson : Essential of Insurance Law, 2nd.
8. Carpenter v. United State of Life Insurance Co., (1894) 161.
4. Oucrton v. Colored Knights of Pythians, (1916) 173 SW 472.
5. Godaall v. Baldera, (1807) 9 East 72.
O. (1898) 123 log NC.
Chapter[II] of Insurance
Principles 53

interest in another save some where the latter is indebted to him personally
in the partnership business. Thus, to the extent of debt owed by co-partner
who is in the position of creditor only has insurable interest in the life of
other partner/partners in general.
. In Connecticut Mutual Life Insurance Co. v. Luches,1, it has been held
that a partner to the extent of the amount of capital which the later has
contracted to bring in.
Statutory duty.Under the statutory duty one has the insurable
interest in the life of the other which may be classified as follows :
(vi) Employer in the life of the employee during the course of
employment.
(vii) Landlord in the life of his tenants to the extent of rent.
(viii) Company has insurable interest in the life of shareholders
and shareholder in the life of other shareholders. A shareholder in a
company cannot insure the property of the company as he has no
insurable interest in any assets of the company even if he is the sole
shareholder.2
(ix) Master in the life of servants.
(x) Principal in the life of his agents.
(xi) Trustee and Co-Trustee.

Liability of insurer Without insurable interest

Insurable interest is sine qua non for a valid insurance and without
it there can be no valid contract of insurance and in such case insurer Will
be liable to the aggrieved person. The illustrated case is Liberty National
Life Insurance Co. v. Welden.3 In this case a nurse effected three policies
from three different companies on the life of the niece Without knowledge
of parents of the life assured. The niece was a child of two years. One day
the nurse visited the childs house and gave her soft drink containing
arsenic as a result of which the child died within few hours. The nurse
was prosecuted and convicted for murder. Not only this, the insurance
companies were held to pay damages to the parents of the child for their
negligence in issuing policies to one who had no insurable interest in the
assured.

(2) Insurable interest in fire insurance

Fire insurance can be made by a person having insurable interest in
the property to be insured. If it is effected by a person having no such
interest, there Will be no valid and operative contract. It is an agreement
with a particular person to pay a certain sum of money if he suffers any
loss or damage due to fire with reference to the property insured.
In Sadler Co. v. Badcock,4 case it has been held that fire insurance

(1883) 108 US. 408.

Assurance Co. Ltd.

159959?
Macaura v. Northern
(1830) 4 Bligh NS 194 (HL).
(1743) 7 AK 554.
54 GeneralPrinciplesof Law of Insurance [Chapul-"l

is not of the bricks and materials but the interest of the assured in th.
subjectmatter of insurance.Therefore, it is not necessary that the assured
must have full ownership in the property but any special interest 0}
entitlement to the property will support a valid insurance.
A person who is so interested in a property as to have benefit from
its existence and prejudice by its destruction is said to have insurable
interest in that property and such person can insure the property whether
he is owner or not.
The most important thing as to insurable interest is that such interest
must exist both at the commencement of the contract as well as at the
time of loss. If it is does not exist at the time of commencement, their
contract will be without subject matter hence ineffective and where such
interest does not exist at the time of loss, he suffers no loss, hence no
indemnity. Thus, where insured property has been sold and it is damaged
thereafter, insurer suffers no loss and therefore, no indemnity.
The following classes of persons have been held to possess insurable
interest and they can insure the property against fire.

1. Owners of the property

The first class of persons are the owners of the property concerned
whether sole or joint owner partners in the firm owning the property or
having possession may effect insurance. It is not necessary such person
must have possession also. Thus, a lessor and lessee of the property can
both effect such contract jointly or severally. Husband and wife both have
mutual insurable interest on each others property either being owner or
possessor of the property.
Tiustees are legal owners and beneficiaries the beneficial owners of
trust property and each can insurer it.
2. Possessor of the property
Any person having possession of the goods irrespective of ownership
may effect a valid insurancethe following class of persons :
(i) Vendor and purchaser of the property : Both vendor and
purchaser have right to insure. The vendors interest continues till the
transfer is completed and even thereafter if he is an unpaid seller. A
purchaser of the property may also effect insurance whether property or
possession or any of them is with him.
The case of Collingridge v. Royal Exchange Assurance Corporation,1 is
leading case on the point. The owner had insured the premises which was
compulsorily acquired by the Metropolitan Board and agreed to purchase
it. Before the vendor could execute the transfer, the premises was destroyed
by fire and the insurer was held liable to indemnify the vendor as legally
the premises was still his.
Likewise a full ownercan insure the
if he becomes
a purchaser
property;but if it is merelya contractfor sale and not a contract of a sale
of immovableor movableproperty,the purchaser has an insurable interest
1. (1877) 3 QBD 173.
 111]
Chapter ofInsurance
Principles 55

because he is an equitable owner. An interest under an agreement to

purchase was held to be an insurable interest.l
(ii) Mortgagor and Mortgagee.A mortgagor as the owner of the
property has an insurable interest and he can insure the full value of the
properety. The mortgagee cahalso insure full value of the property.2 If it
is intended for the benefit of the mortgagor also.3
In Small v. U.K. Marine Insurance Association, it has been held that
the mortgagor and mortgagee have both distinct interests with mortgaged
property.
But Section 72-A, the Transfer of Property Act lays down following
restrictions on this right of the mortgagee.
(a) he is not entitled to insure the property to a greater amount
than that specified in the mortgage deed, and
(b) where mortgage deed does not mention the amount, in that case,
he cannot insure for more than two-third of the value of the
property, that is two-third of the amount required to reinstate
the property.
(c) This section also prohibits an insurance by the mortgagee if there
is already an insurance by the mortgagor.
(iii) Lessor and Lessee.The lessor and lessee both have insurable
interest in the property leased. The lessor can insure for the full value of
the property being owner of the property, but in certain cases, the lessee
can insure for the full value, for example, if he is liable to keep the property
'
in repair or if his liable to the owner for loss by the fire.
In Castellain v. Preston}5 it has been held that tenant of premises has
an insurable interest founded upon the beneficial enjoyment of the premises
which he loses in the event of its destruction Again a tenant who has
taken on rent a furnished house has an insurable interest in the furniture °
(iv) Bailees, such a carrier, godown keeper, ware house keepers,
pawnees are responsible for the safety of the property entrusted to them
so each can insure the property bailed to them.
A lien holder having a charge or lien on the property has an insurable
interest to the extent of the value of the lien or charge.
(v) An agent acting on behalf of his principal has insurable interest
in the property which he has in his possession on behalf of his pnnciple.
An agent has such interest during the course of his employment.
(vi) Administrators, executors like trustee are also have insurable
interest of such properties holding in such portion may effect insurance.

.. l. Vim Kumr v.°NcwxeolandInsuranceCa, AIR 1964 Bum. 347.

2. North Britain and Mercantile Insurance Co. v. London. Liverpool and Club:
[mm Co. (1877) 5 Ch 6 569 (CA).
1 human!" Fm 0173:: v GlasgowPromdtnt InvestmentSociety.(1838) 13 AC
6%.
4. (1897) 2 QB. 81)..
(1853) ll QBD. 380.
.- Wamch s. Dean. 1 US 776.
 5 0! Lawof Insurance
GeneralPrinciples lump: 111

cannotinsurethe propertyof the °°mpany

in I company
A shareholder
as he has no insurableinterest in any assetsof the company even of he
is the solo shareholder
Macaumv. NorthernInsuranceCo. Ltd 1 is leading caseon the point
of the company.He sold sometimber
Macaurawas the soleshareholder
belongingto him which he had insured to I company. The timber was there
after dmtroyed in fire and he claimed for the loss. It was held that he had
no insurable interest in the timber at the time of loss, as it was an assets
of the company.Neither as a simple creditor nor as a shareholder had he
any incurable interest in it.
Lord Buckmaster said.... "no shareholder has any or equitable
"
insurable interest therein ...... Lord Sumner said,..."his relation was to the
company, not to its goods, and after the fire he was directly prejudiced by
the paucity of the companys assets, not by the fire."
The leading case on insurable interest is the Macaura v. Northern
Insurance Co.3 In this case one Macaura insured timber in his estate
against fire. He sold the timber to a company of which he was sole
substantial shareholder. Thereafter most of the timber was destroyed by
fire and he demanded that he should be indemnified. The insurer succeeded
in refusing to comply with the demand. The insured had no statutory
interest because as a shareholder he had no insurable interest in the assets
of the company though he too would suffer loss on the company losing its
property nor had he contractual interest under the policy because he could
not prove interest at the time of the loss. Though the insured had no
statutory interest the policy was held not to be a wagering contract. "No
gaming contract" was ever made, but this was a contract of indemnity
under which the assured must ever and prove interest at the time of loss.
This is the part of the law of 1nsurance, quite independently of the Gaming
1»Act, though the consequences
of failure to prove interest is the same
namely, that the policy is unenforceable by an uninterested assured.
Lord Sumners judgment in this case still holds good. In this case the
assured had neither insurable interest at the time of insurance nor at the
time of loss.

Examples of insurable interest :

Insurable interest is not limited to absolute ownership of property but
may arise in other ways also. It may be based on ownership whether
absolute, partial or limited, legal or equitable, for example, in joint owners.
mortgagor and mortgagee, trustee or beneficiary, even mere _ lawful
possession alone such as that of lessee, bailee or carrier of goods or
warehouse man, can give insurable interest. It may also be founded upon
contract, as in the case of re-insurance by the insurer.
In life insurance, close relationship such, as husband and wife which
cannot be strictly described as pecuniary.3 Parent and child, employer and
\

I. (1925) AC 619,
2. (1925) AC 619.
8. Griffiths v. Fleming, (1909) 1 KB 805.
Chapter [[1] Principles of Insurance m

employee. creditor and debtor, partners in business may give an insurable

interest in the life of each other.
A person who is I0 interested in a property as to get benefit from its
existence and prejudice by its destruction is said to have insurable interest
in that property. Such a person can insure the property against fire. The
interest in the property must exist both at the time of inception of the
policy as well as at the time of the loss. If it does not exist at
commencement of the contract it cannot be subject matter of the insurance,
and if it does not exist at the time of loss he suffers no loss and so needs
no indemnity. Thus, where he sells the insured property and it is damaged
by fire thereafter, he suffers no loss.

Insurable interest and Marine Insurance

Insurable interest in the sine qua non for all types of , insurance for
effecting a valid contract. Because without it such contract will be a contract
of wager hence void. An insurable interest is sui juris and peculiar in its
texture and its operation.1 A person can be said to have insurable interest
in the subject matter where he has such a relation or connection with or
concern in, such subject matter that he :
(i) will derive pecuniary benefit or advantage from its preservation,
or

(ii) will suffer pecuniary loss or damage from its destruction,

termination or injury by the happening of the event insured
against.
In Marine Insurance, insurable interest must exist at the time of loss
and it need not subsists at the time when the insurance is effected. Sections
7 to 17 of the Marine Insurance Act, 1963 deals with insurable interest.
Section '7 defines insurable interest as :
(1) Subject to the provisions of this Act, every person has an
insurable interest who is interested in a marine adventure.
(2) If 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 there in, in consequence of
which he may benefit by the safety or due arrival of insurable
pmperty or may be prejudiced by its loss or by damage thereto.
or by the detention thereof, or may incur liability in respect
thereof.
The term marine adventure has been defined in Section 2(d) of the
Act which lay: :
Marine adventure include any adventure where
(i) any insurable property is exposed to maritime perils.
(ii) the earnings and acquisition of any freight, passage money,
commission, profit or other pecuniary benefit, or the security for
any advances. loam or disbursement is endangered by the
1. Wamach v Dame, 104 US 775.
5 GeneralPrinciplesof Law of [mm [Chm m

exposure of insurable property to maritime perils.

(iii) em! liability to I third party may be incurred by the owner or
or other person interested in or responsible for, insurable property
by reason of maritime perils.
Section 2(c) of the Act define insurable property as any ship, goods or
any other movable. which are exposed to maritime perils. Further Section
3 ((9 define. maritime perils u the perils consequent on, or incidental to
the namtion of the see, that is to say, perils of the lee, fire, war penlg
plates, robbers, thieves, captures, seizures, restrain. and detainmenta d
princes and people, jettisons, barratry and any other perils which are either
of the like bad or may be designated by the policy.
When insurable interest must attach.Sectian 8 provides :
(1) The assured must be interested in the subject-matter insured
at the time of the loss, though he need not be interested when the
msurance is effected :
Provided that where the subject matter is insured I'lost or not
lost". The assured may recover although he may not have acquired
his interest until after the loss, unless at the time of afi'ecting the
contract of insurance, the assured was aware of the loss, and the
insurer was not.
- (2) Where the assured has no interest at the time of loss, he
cannot acquire interest by any act or election after he is aware of the
loss.

Defeasible or contingent interest : (Section 9)

Section 9 provides (1) that a defeasible interest is miserable, as also
in I contingent interest. (2) In particular, where the buyer of the goods
hu insured them, he has an insurable interest, not withstanding that he
might, at his election have rejected the goods, or have treated them as at
the sellers risk, by reason of the latters delay in making delivery or
otherwxee.

Partial interest : (Section 10)

Section to provides that a partial interest of any nature is insurable
Reinsurance : (Section 11)
Section 11 provides that the insurer under a contract of marine
insurance has In insurable interest in his risk, and may ne-insure in respect
of it and unleu the policy otherwise provides, the original assured has no
right or interest in respect of such reinsurance.
Bottomry : (Section 12)
Bection 12 provideowthe lender of money on bottomry or respondentia
'
has In insurableinterest in respectof the loan.
Bottomry or reopondentia are the contracts authorising captain of ship
to borrowmoneyon the securityof the vesselor against the security0
the cargo to the extent of the credit.
 ofInsurance
Principles 59
cnpu-r III]

Masters or Seamans Wages : (Section 13)

Section 13 says the master or any member of the crew of a ship has
an insurable interest in respect of his wages.

Advance freight : (Section 14)

It says that in the ease of advance freight the person advancing the
freight has an insurable interest, insofar as such freight is not repayable
in case of loss.

Charges of insurance (Section 15)

The assured has an insurable interest in the charges of any insurance
which he may effect.

Quantum of interest : (Section 16)

This section provides the quantum of insurable interest : ( 1) Where
the subject matter insured is mortgaged, the mortgagor has an insurable
interest in the full value there of and the mortgagee has an insurable
interest in respect of any sum due or to become due under the mortgage.
(2) A mortgagee, consignee or other person having an interest in the
subject matter insured may insure on behalf and for the benefit of other
persons interested as well as for his own benefit.
(3) The owner of insurable interest has an insurable interest in
respect of the full value thereof, notwithstanding that some third person
may have agreed, or be liable to indemnify him in case of loss.
English Marine Insurance Act, 1906 provides similar provisions.

Limited interest .
The Marine Insurance Act, 1963 provides a list of persons having
limited insurable interest, such as persons having partial, defeasible or
contingent interest, the insured, the lender of money (bottomary). Master
or seaman as to their wages etc. To that extent they may be insured under
the marine insurance.
Tbmlison Ltd. v. Haplurane,1 is the leading case on the point. In this
case the plaintiff who were road carriers insured tobacco and cigarette
consignments which they had contracted to carry to the customers depot
by a Lloyds goods in transit policy, with the defendant insurer. This they
did as they were required under one of the terms of carriage. Before the
goods could be unloaded at the owners depot the lorries and tobacco were
stolen without the plaintiffs fault. The plaintiffs claimed the value of the
goods. The insurer contended that the policy did not cover the owners
interest but only the carriers interest in respect of their negligence. In
appeal the House of Lords held that
(i) this was a policy on goods and not merely in respect of the
carriers negligence,
(ii) the carrier had an insurable interest in the goodsthe value of
, - which was recoverable uhderthe policy but that,

I. (1966) 1 AC 418.
 '
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