Considering now the cases post s. 5(2), one of the notable cases is the Moonacre case, where question raised was whether a licensee in possession of a yacht enjoyed an insurable interest. It seems as observed by Thomas that the precise decision was consistent with the narrow perception of insurable interest but the reasoning made by the Deputy Judge Colman QC reveals a distinct approach towards the broader view. The essential argument of the Deputy Judge was, “whether the relationship between the assured and the subject –matter of the insurance was efficiently close to justify his being paid in the event of its loss or damage”. Colman J (as he became) however, had a further opportunity to reflect on his above judgement in the case seen next.
In National Oilwell (UK) Ltd v. Davy Offshore Ltd, Colman J in reflecting and relying on his decision in Moonacre, as argued in Hodges, extended the definition of insurable interest to cover a case in which the assured was not in possession of property, but his relationship to it was such that he may incur liability in respect of the property being damaged. National Oilwell Ltd therefore had an insurable interest. R.Thomas views this decision as establishing it as unnecessary to show that assured had any legal or equitable interest in the property to establish a sufficient relationship to the property to found a contract of insurance. Both views of the decision in similarity show that above recent authorities suggest the possible emergence of a less restrictive approach to the definition of this concept. Though yet to be confirmed by the appellate court, he states that there is no reason why it will not be. As a reason for the possible change in the approach he explains that it is perhaps being realised that risks about property transactions and adventure are probably as real as any other risks not withstanding the absence of legal or equitable interest. However, to ever exclude ‘economic interest’ even as a partial requirement, which was the key of the Lawrence J’s approach, could mean giving the insurers a technical entitlement to avoid the insurance contract. Speaking of economic interest, the other great obstacle to the adoption of ‘expectation of benefit’ as one of the grounds of insurable interest ‘was’ the principle of indemnity itself, as was pointed out by Lord Ellenborough in Routh v. Thompson. The reason being that principle of insurance is based on indemnity and for that there is a need for loss, however, allowing in full indemnity is in fact deeming the insurer to have conceded that the assured expectation of benefit would have been fulfilled, and thus the assured can be over-indemnified. Though the concern in this regard is understandable, and the words remain the same in the statute, courts of today now regard the interpretation of ‘expectation’, as an expectation, and “so award damages only for loss of chance”. However, as of today, except for the UK, other foreign countries such as Canada and USA have adopted ‘economic interest’ as the only requirement and not with the requirement of ‘legal or equitable interest’ as well, and it has been observed that this has not led to any kind of major difficulties.
b) Wordings of the Statute:
On reading the entire wordings of s.5 (1) and (2) it may seem, as submitted above, that the section is merely a definition and is not exhaustive.
As is observed by Thomas, the words “in particular” in s.5 (2), make this subsection simply illustrative of the broader statement in s.5 (1) so as to create an impression that an insurable interest can be supported in unspecified circumstances not confined to s.5(2). Speaking of which he states that, when the MIA bill was introduced in the 1906 session of Parliament and was sent to the Commons Standing Committee on Law, there were two limbs to s5 (2). Namely, s. 5 (2)(a) which is almost the same as the current subsection, and s. 5(2)(b) that stated that interest cannot be founded upon expectation of benefit or detriment alone. He then explains that, the ‘unknown reason’ this s. 5 (2)(b) was dropped could be either because it made little difference or, to expand the scope of the current s 5(2) so as to accommodate within it certain relevant decisions of that period that were not easy to reconcile with the then established but expanding doctrine. Thomas reasons that one such example of such a case could be Wilson v Jones. He debates that Chalmers mentioned it as an authority that dispensed with the need to show a proprietary or contractual right in relation to interest but the facts however showed that the assured had only a title to the shares but no right or title in respect of the adventure in itself or the insurable property though Chalmers takes the view that there was interest in the adventure for the shareholders. Arnould however, regarded this case as a doubtful authority. Thus, though arguable, one can say that the Commons Committee could have intended to frame s. 5(2) as inclusive and with its language broad, as is also thought by Chalmers.
Following the above therefore and more in regards to the future, the next question that arises is, if, “when the parliament provided the s 5(2) of the MIA, was it simply to be illustrative of a wider concept of insurable interest expressed in s. 5 (1) or did it mean to empower the courts to develop new heads of insurable interest in cases outside s.5(2)?” Thomas suggests that this could very well have been the intention despite the ‘ambivalence’ in the wordings of the section, but the act is a codified measure and clear words are needed to attribute an intention to the parliament and that even if this was overcome there are other difficulties, such as previous precedents. Though there is no sure shot answer to the question, it can be suggested that in 1906 because there was no act in place on this subject and only precedents from previous judgements, it may have well seemed reasonable to empower the courts with enough room to develop the law further and perhaps even develop new types of insurable interest as thought reasonable and necessary with time and this is partly visible from the case study above.
Types of Insurable Interest:
There exist many varied types of insurable interest. One should note that the list would keep growing with time and necessity. Some of the ones that exist are in relation to owner of a ship, owner of goods, owner of freight with either contingent or defeasible interest in freight, the insurer, mortgagor and mortgagee, shareholders and now other instances that fall inside the ones already mentioned.
The Other Statutory Requirement of Insurable interest:
Another requirement that is important to the rule in marine insurance, is the fact that the assured must have an interest in the subject matter insured at the time of the loss, bas stated in s. 6(2) of the MIA. If the assured has no interest or if there is a mere expectation of interest at the time of the loss, then normally this will not suffice. It should be taken as a wagering contract and, therefore, void.
Hodges has pointed out, that the concluding words of s. 4(2)(a) have a somewhat obscurely indicated that though the assured does not need to have an insurable interest at the time of the loss and this even if he had entered into the contract with an expectation of acquiring an interest, if s. 4(2)(a) was to be read with s. 6(1). The above is the reason why the law recognizes two exceptions to this general rule of time of loss.
The first exception is that a policy offers a cover on a ‘lost or not lost’ basis, as seen in s. 6(1). Thus if such a policy is taken after the time of the loss it still allows the assured to have an insurable interest in the property, provided that both the assured and the underwriter are not aware of the loss.
The development of this provision as a result of the technology in the old times, when the Act was enacted, as it was not always possible to have a contact with the ship and check whether she was in danger or not. The purpose it therefore served then was to protect an assured who had purchased goods without knowing whether they have already been lost at sea, in most cases when afloat. The retention of the meaning in Clause 11.2 shows the intention of the ICC to maintain its broad scope hence in turn the law of insurable interest as well.
The second exception concerns policies taken after the loss and so operates in the light of s. 51. and this works out as perfectly logical, since one cannot give or assign what one does not possess.
Reform:
Australian cases are widely referred to in English marine insurance and vice –versa is because the MIA 1909 which is used in Australia is in all relevant respects the same as the MIA 1906 (UK). Recently however Australian Law Reform Commission has drafted and published a draft MIA 1997. Some of the arguments in related articles have been that areas, one of which is insurable interest, have all been reformed in non- marine insurance and therefore they should not be retained as unreformed the MIA but reformed. The argument therefore is that if the Aussies are doing it then why shouldn’t the British Parliament, after all, since in today’s world of quick contracts, the problems faced by one must be faced by the other as the act in question is the same, unless it would be better to accept that Australian legal system is more up to date than the British. What is needed therefore, is for something similar to be done like the Australians and the laws on this topic of ‘insurable interest’ to be looked at in regards to how it exist in each country, as after all it is an act governing international contracts and therefore all the more needs to be kept an eye on for any needed changes in it so as to keep pace with this world that is always changing and has in fact since the MIA of Sir Mackenzie Chalmers.
Conclusion:
In conclusion therefore from the above the following can be concluded. Firstly that that the concept of insurable interest has developed to satisfy the requirement of the indemnity principle so that assured is indemnified in the true sense only if he suffers a lost. Hence the need has been felt for the existence for the legal or equitable relationship between the assured and the insured subject matter. There have been arguments made, like that by Lawrence J for the removal of this relationship and the acceptance instead only that of economic interest, as taken up in some foreign legal systems, but though not completely accepted as approved the courts have in recent decisions tried to broaden the scope of the act. Their problems and hence the restrains have however been in relations to the technical glitches created in the criteria’s of factual expectation of benefit or loss. It has also been seen from the above discussion that the courts have been free to develop new types of insurable interest, and this has been possible mainly because of the illustrative approach taken to s 5(2) and the recognition of the marine adventure itself as capable of being subject matter of insurance. The other such broad usage of this concept has been seen above in s 6.
However, from the changes towards new approach and reforms taking place all over the world and discussed above as happening in Australia, though it may seem workable, tolerable and as broadening, the present concept of insurable interest still has its short comings and appears more as struggling for certainty, as if to be waiting for a new Sir Mackenzie Chalmers of the 21st century.
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See Chalmers D, MIA 1906, (1993, Butterworths), p 11.
Aristotle (384 –322 B.C.), Greek Philosopher and teacher in Politics.
See Gilman, Arnould’s Law of Marine Insurance, (1997, 6th Ed., Sweet& Maxwell), p. 274
See The Modern Law of MI [vol. 1] edited by Prof. R. Thomas, LLP (1996), p 20, footnote no 117.
Hodges, C&M on Marine Insurance Law, (1999), p 43.
[1992] 2 Lloyd’s Rep. 501.
See R.Thomas, The Modern Law of MI [vol. 1], p 21.
[1993] 2 Lloyd’s Rep 582.
Case of Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1991] 2 Lloyd’s Rep 288, that was also presided over by Deputy Judge Colmon was referred to by him, in his this judgment, in this case National Oilwell, though there was no real discussion by him on insurable interest in that case.
See R.Thomas, The Modern Law of MI [vol. 2], p 157.
See The Modern Law of MI [vol. 2] edited by Prof. R. Thomas, LLP 1996, p 153.
Arnould, Law of Marine Insurance, (16th edition), para. 328.
Lucena v. Craufurd (1806) 2 B&P (NR) 269
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