Should the MIA clarify how long the obligations of utmost good

faith continue?

that there is a contractual duty ‗to which the duty of good faith can attach‘: See N Rein ‗Utmost good faith in marine insurance‘ (1999) 10 Insurance Law Journal 145, 151–2.

519 N Rein ‗Utmost good faith in marine insurance‘ (1999) 10 Insurance Law Journal 145, 165. 520 Unreported Supreme Court of South Australia 26 June 1992 (Bollen J).

521 Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [1995]1 Lloyd‘s Rep 651. 522 id 667.

523 Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd & La Reunion Europeene (The Star Sea) [1997]

1 Lloyd‘s Rep 360, 372. See N Rein ‗Utmost good faith in marine insurance‘ (1999) 10 Insurance Law

7. Insurable interest (s 10–12)

Introduction

7.1 The concept of insurable interest evolved from the statutory avoidance of wagering contracts. Until the Marine Insurance Act 1745 (UK) there was no legal requirement that an insured have any connection to the insured adventure.

‗Insurance polices were amenable to abuse as wagers on the continued safety of the insured property and, since the assured won the bet if the vessel sank, they provided a financial disincentive to the exercise of due care for the safety of the crew.‘524

7.2 Contracts of marine insurance for speculative purposes (such as gaming and wagering) are declared to be void by the MIA.525 A contract is deemed to be a gaming or wagering contract where the insured does not have an insurable interest as defined by the MIA and the contract is entered into with no expectation of acquiring such an interest.526

‗10(1) Every contract of marine insurance by way of gaming or wagering is void. (2) A contract of marine insurance is deemed to be a gaming or wagering contract:

(a) where the assured has not an insurable interest as defined by this Act, and the contract is entered into with no expectation of acquiring such an interest; or (b) where the policy is made ‗interest or no interest,‘ or ‗without further proof of

interest than the policy itself,‘ or ‗without benefit of salvage to the insurer,‘ or subject to any other like term:

Provided that, where there is no possibility of salvage, a policy may be effected without benefit of salvage to the insurer.‘

7.3 The principle of insurable interest is also derived from the fundamental principle of indemnity527 — the insurer is under an obligation to reimburse the insured for the actual loss from the covered risk and an insured is entitled to be restored, subject to the terms and conditions of the policy, to the financial position enjoyed immediately before the loss. To show that the insured suffered an actual loss, it must show that it had an insurable interest in the subject matter insured.

Parties with an insurable interest

7.4 Persons who have an insurable interest are defined in s 11 of the MIA.

524 H Bennett The law of marine insurance Clarendon Oxford 1996, 13. 525 MIA s 10(1).

526 MIA s 10(2)(a).

527 M Mustill and J Gilman Arnould’s law of marine insurance and average 16th ed vol I Stevens & Sons London 1997 para 32.

‗11(1) Subject to the provisions of this Act, every person has an insurable interest who is interested in a marine adventure.

(2) 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 by damage thereto, or by the detention thereof, or may incur liability in respect thereof.‘

7.5 The MIA does not define an insurable interest exhaustively. In order to have an insurable interest it is not necessary to have ownership or property in that which is insured. For example, mortgagees528 and lessees of insured property have an insurable interest. An insurable interest may be defeasible or contingent.

‗It is sufficient to have a right in the thing insured, or to have a right or be under a liability arising out of some contract relating to the thing insured, of such a nature that the party insuring may have benefit from its preservation, or prejudice from its destruction.‘529

7.6 The MIA also refers specifically to certain other interests as being insurable interests, such as that of a lender of money on bottomry or respondentia,530 the master or crew members in respect of their wages,531 a person advancing freight532 and a mortgagor or mortgagee of insured property.533

7.7 Insurers and courts may take a technical approach to the requirement for an insurable interest which unduly inhibits recovery for loss.534 For example, in Macaura v Northern Assurance Co Ltd,535 a non-marine case relevant in this context, timber was sold to a company by the owner of the timber in return for shares in the company. The timber was destroyed by fire and the owner claimed under his policy of insurance. The House of Lords held that the insured had no insurable interest either as a sole shareholder or as a creditor of the timber company.

7.8 A strict approach was also taken in the South Australian Supreme Court case Truran Earthmovers Pty Ltd v Norwich Union Fire Insurance Society Ltd,536 which involved the purchase of a bulldozer. The purchaser was held to have no insurable

528 eg Kin Yuen Co Pte Ltd v Lombard Insurance Co Ltd [1994] 2 SLR 887.

529 M Mustill and J Gilman Arnould’s law of marine insurance and average 16th ed vol I Stevens & Sons London 1981 para 332, citing Lucena v Craufurd (1806) 2 B & PNR 269, 302 (Lawrence J), 321 (Eldon LJ); Crowley v Cohen (1832) 3 B & Ad 478.

530 MIA s 16. See para 9.4–9.5. 531 MIA s 17.

532 MIA s 18. See also para 7.46. 533 MIA s 20.

534 See ALRC 20 para 118–19. 535 [1925] AC 619.

interest in the bulldozer even though he had lent the owner money which was to be deducted from the purchase price.537

7.9 More recent English case law is said to have seen a ‗push‘ on the ‗frontiers of insurable interest‘.538

For example, in The Moonacre539 the issue of insurable interest arose in a hull insurance case where the insured was not the registered owner of the vessel which had been acquired for his benefit. The vessel was registered for tax purposes in the name of a Gibraltar company. The individual had powers of attorney from the company to sail and manage the vessel and the vessel was insured in his name. A fire on board the vessel resulted in a constructive total loss and the insured claimed under the policy. The judge found that the insured had an insurable interest and stated

‗… the essential question to be investigated in those cases which, since 1745, have been concerned to test the existence of an insurable interest, has been whether the

relationship between the assured and the subject matter of the insurance was sufficiently close to justify his being paid in the event of its loss or damage, having regard to the fact that, if there were no or no sufficiently close relationship, the contract would be a wagering contract.‘540

7.10 In Canada, the restrictive approach taken by the House of Lords in Macaura was rejected in the non-marine case Constitution Insurance Co of Canada v Kosmopoulos.541 The Supreme Court of Canada stated that commentators in the USA and Canada seemed to be uniformly in favour of the adoption of a test for insurable interest based on whether the insured has a ‗factual expectancy‘ of loss rather than following the stricter approach of Macaura.542