3. Insurable interest
Meaning and rationale
Need to have something to be insured upon. Need some relationship with the insured for you to take out a policy.
- One does not want to pass of a wager as “insurance” Newbury v Reliance National Insurance Co *1994+ 1 Lloyd’s Rep 83
- The risk : To indemnify the insured in respect of their contractual liability in the event Russell Ingall achieves a top three series position after the 12th race in the 1992/1993 New Zealand International Formula Ford Series. They were actually placing bets upon a racer coming in top 3
- Held per Hobhouse J: It emerged clearly from the evidence that the plaintiffs never had any insurable interest under either of these policies;
- They were merely a device by which the plaintiffs were seeking to raise money to finance a Formula 3 season in the United Kingdom;
- If policies of prize indemnity insurance were to be valid contracts of insurance they had to be a true liability to another which was the subject matter of the insurance and that was not the position in this case.
Carlil v Carbolic Smokeball
- A wager is a bet; a contract by which two parties or more agree that a certain sum of money, or other thing, shall be paid or delivered to one of them, on the happening or not happening of an uncertain event – 2 parties to hold opposite view of uncertain event. No interest apart from stake money
Life insurance
Source of the requirement
Both at common law (see above), and also many UK and Singapore statutes. - Note our Civil Law Act s5 is different from Gaming Act 1845
- Note that the definition of insurable interest is very strict at common law. But it might not be gaming even if you don’t have this interest, because you may have an expectation of an interest.
Singapore
S. 57, Insurance Act (Cap. 142, 2002)
- Previously it was unclear whether s. 62 (which reprised the English Life Assurance Act 1774) applied to life policies.
If this was indeed so, it would have proved extremely nettlesome: see HY Yeo, “Recent Developments on Insurable Interest in Singapore” *1998+ International Journal of Insurance Law 194.
However, with the enactment of the Insurance Amendment Act (2009), the situation was finally legislated upon: see the new s. 57 (2A) Insurance Act.
- Contra the 1774 Life Assurance Act. Is the UK Act able to be important?
One can see that the Insurance Act requires an “insurable interest”, the UK Act bans situations with no interest, or by way of gaming. Does not require an insurable interest (strict definition)
- Other situations
Note s. 5 Singapore Civil Law Act (Cap 43 1999 Rev Ed); see also English Gaming Act 1845 (note ss. 334 & 335 of the new English Gaming Act 2005, w.e.f. 2007, which repeals the voiding provision of gaming contracts); cf s. 4 Marine Insurance Act.
However, w.e.f. 2009, see new s. 57 (2A) Insurance Act: the gaming provision is no longer applicable to life policies
- Trust situations are exempt. S 5 of the Civil Law Act Section 57, Insurance Act
- (1) A life policy insuring the life of a person which is issued by a registered insurer shall be void unless —
(a) the person effecting the insurance has an insurable interest in the life which is insured at the time the insurance is effected;
Section 62, Insurance Act
- 62. —(1) No insurance shall be made by any person on any event wherein the person for whose use or benefit or on whose account the policy is made has no interest, or by way of gaming or wagering; and every assurance made contrary to this subsection shall be void. - 2) It shall not be lawful to make any policy on any event without inserting in such policy the
names of the persons interested therein, or for whose use or benefit or on whose account such policy was made. [35/93]
- (3) In all cases where there is an interest in such event, no greater sum shall be recovered or received from the insurer than the amount or value of the interest. [35/93]
- (4) Nothing in this section shall extend to insurance made by any person on ships or goods, or to contracts of indemnity against loss by fire or loss by other events whatsoever. [35/93] Section 5(1), Civil Law Act
- All contracts or agreements, whether by parol or in writing, by way of gaming or wagering shall be null and void
UK Life Assurance Act 1774
- it had “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.” Marine Insurance Act of 1746
- Avoidance of wagering or gaming contracts.
- 4. —(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
- the making of assurances, interest or no interest or without the further proof of interest, had led to the introduction of “a mischievous kind of gaming or wagering, under the pretence of assuring the risque on shipping, and fair trade, the institution and laudable design of making assurances, hath been perverted.”
Gaming Act of 1845
- section 18: “All contracts or agreements, whether by parole or in writing, by way of gaming or wagering, shall be null and void.”
- now repealed by Gaming Act 2005. Now s335: “ a fact that a contract relates to gambling does not prevent its enforcement”
England
For the position in England, see Life Assurance Act 1774; see also Feasey v Sun Life, above. - [cf. s. 62 Singapore Insurance Act; in particular, note s. 62(4)]
Incontestibility clause
Anctil v Manufacturers’ Life Ins Co. [1899] AC 604
- “ the instrument shall become “incontestable” on the lapse of a period of a year or upwards,”
- Held it does not apply.
- If insurable interest is absent, the insurance is illegal and void and no agreement between the parties dispensing with this requirement can be effective
It is against public policy to allow parties to contract out of statute
- The Court will be always prepared to pierce the veil of legality with which an insurance contract may be cloaked and unravel the truth.
What is an insurable interest for life insurance?
REMEMBER: Even if you are in a category with interest, you must show interest for the purpose of s 57(2). You can only insure up to your interest
- For deemed interest categories, it might be unlimited. For example s 57(2) applies only to s57(1)(a): the proved insurable interest. For the deemed categories in s 57 (1)(b), it is deemed, and 57(2) does not apply. So UNLIMITED interest!
- For commercial categories, it usually is not unlimited. Presumed
- Insurable interest presumed or proven for certain categories. See s 57(1). Examples include your own life or your spouse (at the time)’s life. There are more.
See the lists of English cases below. Helpful as subsidiary sources to determine what s 57(1)(a) means. But there are deemed categories in s 57(1)(b).
- No real answer as to what dependence is.
- Compare to common law: No presumed interests. Moral obligation? See the ppt
YHY says that sometimes judges ignore it unless it is asserted or pleaded. Very strict and technical. Also an unmeritorious defence (looks bad on insurers).
Sometimes pleaded as a technical defence, as a proxy defence when insurers smell a rat but cannot prove it.
YHY recommends that there should be reform. It should not be illegal, but null and void so that premiums are recoverable.
- See Barnes v London Edinburgh especially.
Is this an aberration in the common law position? Is there justification for it? Has been disapproved in some cases.
Does s 57(1)(b)(3) take care of the position? Own life
M’Farlane v Royal London Friendly Society (1886) 2 TLR 755
- A person is considered to have an unlimited interest in their own life
- But you cannot avoid the requirement for insurable interest by taking out a policy where you have interest and immediately assigning it to someone with no interest.
Spouses
Reed v Royal Exchange Assurance (1795) Peake Add Cas 70
- Per Lord Kenyon, must be presumed that every woman had an interest in the life of her husband.
Griffiths v Fleming [1909] 1 KB 805 ECA
- The wife had killed herself soon after their joint policy was effected, and the life office sought to repudiate liability, not under any express provision relating to suicide but on the ground that the husband (the plaintiff) had no insurable interest in his wife's life so that the policy was avoided by the Life Assurance Act 1774.
- Held: All three members of the court held that the husband did have an insurable interest in his wife's life
- A policy on the joint lives of a husband and wife may be regarded as two policies, each effected by one or other of the married couple on his or her own life
Parent/Child, Guardian/Ward
Ask: S57(1)(b)(3) - takes care of position?
- It is taken care of. If they are under 18, they are deemed to have unlimited interest. Richard Halford v Kymer (1830) 10 B & C 724
- A parent has no insurable interest in a child under English law simply by virtue of that relationship. Likewise a Child has not insurable interest by relationship alone in their parent. - The interest must be pecuniary in nature. Mere love and affection alone do not suffice. This
Howard v Refuge Friendly Society (1886) 54 LT 644
- A parent has no insurable interest in a child under English law simply by virtue of that relationship. Likewise a Child has not insurable interest by relationship alone in their parent. Barnes v London Edinburg & Glasgow Life Ins Co [1892] 1 QB 864
- A possible aberration.
- In an action to recover the amount of a policy of insurance upon the life of a child, the plaintiff's step-sister, evidence was given of a promise made by the plaintiff to the mother of the child to take care of the child and help to maintain it. No objection was taken on behalf of the defendants that the plaintiff had not in fact incurred any expenditure in respect of the child
- Held, that the plaintiff had an insurable interest in the child's life, and was entitled, in the absence of any objection as to the amount in fact expended by her, to recover the amount of the policy.
- It was not stated that a pecuniary interest was not required.
Rather, the expenses to which the plaintiff undertook to put herself for the maintenance of the child were not expenses which she was bound to incur.
Thus, the plaintiff undoubtedly had an insurable interest in the child's life so far as to secure the repayment of the expenses incurred by her.
The plaintiff had an insurable interest in the child's life, at least up to the amount of the payments actually made by her on the child's account
- ASK: But would this not apply to all parents? This decision has been soundly criticised.
Harse v Pearl Life [1904] 1 KB 558 ECA
- The agent of the defendants, an insurance company, in good faith and believing his statement to be true, represented to the plaintiff that an insurance effected by him on the life of his mother would be a valid insurance, and the plaintiff, relying upon that
representation, effected such an insurance and paid premiums thereunder.
- In an action to recover back the premiums, it was held that, assuming the policy to be illegal and void for want of an insurable interest, the representation having been innocently made by the agent, the parties were in pari delicto, and the premiums could not be recovered back.
- ASK: Is it null and void, or is it illegal?
Relevant to whether monies payable can be recovered.
Note in s 57, it seems just to say it is null and void. Unclear if Harse applies, importing the rule.
To be proved Other, wider forms?
- See the Feasey case
- Note s 57(1)(a) allows for an “insurable interest” to give rise to a valid contract. Meaning insurable interest at common law?
Non-family relationship Eg. Employer and Employee
- Hebdon v West?
- Normally can, you stand to lose much from something happening to either party. - See ppt for HOW MUCH you can insure for
Especially Simcock v Scottish. YHY says it is technical and unrealistic In the US, they have keyman insurance.
- See Integraph Systems v Zhang for when insurable interest is relevant and when it is not. Hebdon v West (1863) 32 LJQB 85
- A bank clerk insured the life of his employer under two policies, one for £5k, one for £2.5k. He had a 7yr contact with his employer (£600/yr), he also owed him £4.7k which the employer had promised he would not call for repayment as long as he was alive. - On the death of the employer the first policy paid out £5k (approx interest in the life of
employer i.e. £4.2k expected wages) however the court held the clerk could not collect under the 2nd policy as he had no further interest.
The promise not to call for the debt was not legally binding (no consideration) it was just an expectancy.
Turnbull & Co v Scottish Provident Institution (1896) 34 SLR 146 Simcock v Scottish Imperial Ins Co (1902) 10 SLT 286
- A pork butcher's interest in the life if his 'right-hand man' was limited to the value of one week's employment, since his was a weekly contract.
Dalby v India & London Life Assurance (1854) 15 CB 365.
- The claimant's company had insured the life of the Duke of Cambridge and reinsured the risk with the defendent reinsurer. Although the original insurance was cancelled the reinsurance policy was kept in place.
- Held that defendent would have to pay out.
- LIFE ASSURANCE ACT 1774 does not require that the interest, necessary at inception, still exists at the time of the loss.
Creditor and debtor Creditor on debtor
- Has insurable interest (mortgagee commonly takes out policy) - Must prove strict legal interest
Debtor on creditor though, has none. Hebdon v West
- But see ppt with regard to the promise not to enforce debt during his lifetime. Hebdon v West (1863) 32 LJQB 85
Member of club (Also a recognition of other, wider forms?)
Feasey v Sun Life Ass Co of Canada [2003] EWCA Civ 885; [2003] 2 All ER (Comm) 587
- P&I club (SM) – insured ship members against liability for employee’s personal injury and death claims
Reinsured – an event - a three-year contract under which fixed sums were payable by reference to death or injury in respect of losses suffered by members. (this is a contingency: personal injury )
Reinsurer – disclaimed liability and argued SM has no ii in that contingency/ (would have been okay if reinsured as liability policy)
- What was covered?
Life or one covering legal liability or hybrid? What is proper subject matter of policy? - SM had legal obligations to members which could lead to SM having to pay substantial sums. - No hard and fast rules about how you can cover such an interest.
- Whether the policy embraces the insurable interest intended to be covered - q of construction
The insurable interest of SM was in the well-being of members' employees (tho not in direct legal or equitable relationship with member’s employees), and the policy was not so specific that it did not embrace that interest.
Analogised it to property cases involving sub-contractors with an interest in the site or property (has ii in works cos of his potential negligence or personal loss cos cant work). Here subcontractors covered though strictly no proprietary interest in the work as well as life policies involving presumed interests
Court prepared to recognise interests not strictly pecuniary.
- In those case, sub-contractor has contract relating to property and a potential liability for damage to property – has ii in the property.
Group policy
Company taking out insurance policies to benefit employees
Integraph Systems South East Asia v Zhang Yiguang [2005] 1 SLR 255 SGCA
- I maintained three group insurance policies: the Life Policy, the Accident Policy and the Hospital Policy. I paid for all premiums due under the policies and was the named assured therein. Upon the occurrence of any of the prescribed events to any of Intergraph's employees, Aviva Ltd became liable to pay Intergraph certain sums of money under the policies.
- The respondent ("Zhang"), an employee of Intergraph, was injured in an accident whilst on a business trip.
In respect of Zhang's accident, Intergraph received a total of $468,089.50 from Aviva. Intergraph subsequently offered to pay Zhang's wife ("Mdm Tong") $373,824, which was
80% of the $467,280 it had received under the Life Policy and the Accident Policy from Aviva.
Mdm Tong rejected the offer and commenced an action for the payment of the entire $467,280 in her capacity as the duly appointed committee of the person and estate of Zhang.
- Held: Appeal allowed
- It was a matter of construction of contract really.
- The question of insurable interest was irrelevant as between Intergraph and Zhang. In any event, it was not necessary to consider the question of insurable interest to
demonstrate that Intergraph had taken out the policies to benefit its employees. Intergraph did not dispute that that was its intention. However, Intergraph's intention to
benefit the employees was not to be equated with the creation of a trust. Accordingly, Zhang's claim on trust failed
Applicability of Contracts (Rights of Third Parties) Act
Time of interest
“At the time the insurance is effected” – s 57 Insurance Act - See also s 62
- See Dalby v India. Defeats mischief?
Dalby v India & London Life Assurance Co (1854) 15 CB 365
- An insurance company (Anchor) had taken out insurance with the defendant on the life of the Duke of Cambridge in the sum of £1000 for which it paid a yearly premium during the life of the Duke.
Anchor had itself granted policies of insurance to a Reverend Wright on the Duke’s life in a total amount of £3000.
Anchor’s policy with the Defendant was “a cross or counter-assurance”. Before the Duke died Anchor agreed with the Reverend Wright to the surrender and cancellation of his policies in return for an annuity.
- The issue was whether or not it sufficed that Anchor had an interest in the Duke’s life when the policy with the Defendant was effected or whether such an interest had to subsist at the time of the Duke’s death
- Held: It was sufficient for the interest to exist at the time the insurance was effected and that its value at that time was recoverable under Section 3.
- The obligation at that time to pay the Reverend Wright was “unquestionably an interest in the continuance of the life of the Duke” under Section 3. (Parke B)
“Now, what is the meaning of this provision? On the part of the plaintiff, it is said it means only, that, in all cases in which the party insuring has an interest when he effects the policy, his right to recover and receive is to be limited to that amount; otherwise, under colour of a small interest, a wagering policy might be made to a large amount, - as it might if the first clause stood alone.
- The right to recover, therefore, is limited to the amount of the interest at the time of effecting the policy.
Upon that value, the assured must have the amount of premium calculated: if he states it truly, no difficulty can occur: he pays in the annuity for life the fair value of the sum payable at death.
If he misrepresents, by over-rating the value of the interest, it is his own fault, in paying more in the way of annuity than he ought; and he can recover only the true value of the interest in respect of which he effected the policy: but that value he can recover. - Thus, the liability of the insurer becomes constant and uniform, to pay an unvarying sum on
the death of the cestui que vie, in consideration of an unvarying and uniform premium paid by the assured.
The bargain is fixed as to the amount on both sides.
- This construction is effected by reading the word “hath” as referring to the time of effecting the policy.
By the 1st section, the assured is prohibited from effecting an insurance on a life or on an event wherein he “shall have” no interest, - that is, at the time of assuring: and then the 3rd section requires that he shall recover only the interest that he “hath”.
If he has an interest when the policy is made, he is not wagering or gaming, and the prohibition of the statute does not apply to his case.
Had the 3rd section provided that no more than the amount or value of the interest should be insured, a question might have been raised, whether, if the insurance had been for a larger amount, the whole would not have been void: but the prohibition to recover or receive more than that amount, obviates any difficulty on that head." - the interest only had to exist at the inception of the contract and not at the time of loss Note the timing for indemnity and non-indemnity policies: Feasey v Sun Life Assurance Co of Canada [2003] EWCA Civ 88
Criticisms
Narrow degree of recognition and extent of interest. - Narrow categories
- Ignores genuine worth of a key man to the industry
- Disregards the enhancement of his value thru passage of time - US: keyman policy
Ian Rush and Liverpool club Singapore does not have that. Contra Australia
Insurable interest not required See ppt
Contra US
See the insurable interest definition. Different from Singapore, which is more restrictive. See UK Law Commission proposal for reform
Indemnity/property insurance
S62 (4) Insurance Act: Nothing in this section shall extend to insurance made by any person on ships or goods, or to contracts of indemnity against loss by fire or loss by other events whatsoever.
- Excludes application of statutory need for insurance interest, but still must not be wagering, otherwise s5 of the CLA applies.
Excluded - personal property
- Indemnity, however, means real prop, personal prop, liability. Means you pay him what he has lost
- Real: S’pore position; cf English position: Dicta Mark Rowlands; Sui Yin Kwan
The Life Insurance Act 1774 has been argued not to apply to real property. See the cases. It does not say anything about whether it applies to contracts of indemnity. Says it does not apply to “ships, goods or merchandises”. Real property?
It was argued that because there’s no gambling or wagering of mischief in Indemnity policies, Act should not apply.
In Singapore, in 1993, we decided that contracts of indemnity do not fall under. Added a clause in Insurance Act.
- Many technicalities in s 62 (From Life Insurance Act 1774) For example, must insert names of all interested persons
A problem if it applies to an indemnity policy. For example, if it’s for real estate, need to insert tenants names. But this is not practical! Tenants change repeatedly.
See also s 62(3). No greater sum recoverable than value of the interest. That is shown at the time of taking up the policy. Troublesome.
- Indemnity policies do not also fall under s 5 CLA. - YHY says one special case: Valued policy
An exception to indemnity principles because you pre-agree a valuation.
Oftentimes these are popular because of heavy market fluctuations making it difficult to value market rates.
Marine insurance (Special)
See ppt
Meaning of insurable interest in an indemnity contract
Relevant because you still must not be “wagering” or else s 5 of the CLA applies. Also, you must demonstrate an interest under s 62 because you can only insure up to the value of your interest. Basically, you get what you have lost, subject to the requirement that you be interested in it. .
- Current approach in Lucena. Legal or equitable relationship - But there has been some liberalisation
- More liberal approach?
See dicta in Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211 and Glengate-KG Properties Ltd v Norwich Union Fire Ins Society [1996]
The judges clearly lean against this defence
- In contrast, some other jurisdictions take a broader view:
for Canada, see Constitution Insurance Co of Canada v Kosmopoulos (1987) 34 DLR (4th) 208, see note by J Birds [1987] JBL 309
many US jurisdictions. For example, see New York Insurance Law (1993) para. 3401: the term insurable interest “shall be deemed to include any lawful and substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary damage.
- MY COMMENT: In light of how we need no insurable interest but we cannot be wagering, can we/should we apply the lower, factual standard?
Lucena v Craufurd (1806) 2 B & PNR 269
- NB. Laurence J’s view versus Lord Eldon’s view (factual expectancy versus ‘legal or equitable relation to the property’; restrictive versus broader meaning.)
- See Macaura for an example of how this works. Cf. ss. 4 & 5(2), Marine Insurance Act (Cap. 387, 1994) Macaura v Northern Assurance Co [1925] AC 619
- M sold timber to co. M was sole shareholder and creditor of co. Timber on M’s land. M insured timber
- H: M has no legal or equitable relationship vis a vis company’s assets, because shareholder has no right to company’s property
- Followed in Scotland 1999 Cowan v Jeffrey Cf:s5(2)MIA: “equitable or legal relation to adventure .. Or property”
- YHY says he could circumvent it by taking out a policy insuring his debt, or insuring a possible fall in the value of his shares.
cf Sharpe v Sphere Drake Insurance (The Moonacre) *1992+ 2 Lloyd’s Rep 501 (concerning sole shareholder of company).
- 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 (at 512): '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 …'
Glengate-KG Properties Ltd v Norwich Union Fire Ins Society [1996] 2 All ER 487
- Policy covering owner against consequential loss if any building or prop used by insured suffered loss . A business interruption policy. Here a fire razed a building and burnt the architect’s drawings.
- Held: this concept of user is wide, architect’s plans fell within consequential loss cover provided there ‘ shall be in force an insurance covering interest of insured in the property at the premises”
According to the proviso, there must be an insurable interest.
- Majority: did not have an interest to insure, but minority – ought to have insured. Minority did cite Laurence J. Suggested that they preferred that idea.
Categories of interest in real property
Lesser interest, eg tenant Sadler v Badcock
- The policy in this case covered the lessee of a house for a period of seven years, the insurers' undertaking being "to pay ^400 to her, her executors, administrators and assigns so often as the house shall be burned within the said term."
- The lessee parted with her interest in the house which was then destroyed by fire. - After the loss the policy was assigned to the person who had acquired the lease and an
attempt made to recover the amount of the loss.
- Lord Hardwicke held that the policy was a contract to indemnify the original holder against loss to the extent of ^400, and as she had not sustained a loss, the insurers were not liable. Mortgagee
Woolcott v Sun Alliance
- …when more than one person is interested in property,these persons may insure under a single policy; both their interests and their potential loss differ, so theirs is not a joint interest or a joint policy: it is an insurance by two or more persons for their respective interest.
- In this situation, these persons are parties to the contract of insurance. Vendor / vendee
- Rayner v Preston: Each to protect individual interest. Sale of goods – seller/ owners or risk buyers;
- Buyer- has ii when property passed, on risk or has possession
- Hua Seng: cargo owners had ii altho not paid for good s yet but possession handed to them already.property in goods had passed
Personal property
- 62(4) ; wagering provision s5 Civil Law Act . - Possession with legal responsibility
Marks v Hamilton
- Insolvent debtor: policy on premises (dwelling in) and goods. Such property already vested in provisional assignee.
Others with limited interests
Candidates: bailees, warehouseman, wharfingers, carriers , pledgees, contractors/subcontractor, motor insurance
- 1774 Act not applicable; s62(4). Does not contravene s 5 Civil Law Act (wagering provision) - Rationale?
Bailees
- Bailee: entrusted with goods: contractual and tortious liability re goods - Extent of interest
personal liability for goods value of lien or charge on goods - How can he insure
own interest - personal liability policy whole value of goods (goods policy) - The difference is a matter of construction!
Waters v Monarch
Waters v Monarch Fire and Life Assurance Co [1859] All ER Rep 654
- Warehouseman effected floating policy on “goods, the property of the assured or held by him in trust or on commission”
- Insurer argued: he’s only to be indemnified for lien portion, only prepared to indemnify to that extent.
- Held: Goods held by him in trust: goods with which assured is entrusted, not trust in strict technical sense
intended to ensure in full entitled to be indemnified in full
Hepburn v. A. Tomlinson (Hauliers) Ltd [1966] AC 451
- Bailee carriers - “goods in transit policy”; goods got stolen without his negligence. Insurer: insurer argued that insured had no liability, hence no loss. NOTE: This argument works only if liability policy
- On construction - policy conditions were appropriate to goods policy
- Goods policy – irrelevant that bailee suffered no loss, whole rationale behind this sort of policy – commercial convenience
- S62 does not apply or would have created 2 problems - To be named ss2; and extent of recovery ss3
Ramco (UK) Ltd v International Insurance Co of Hannover [2003] EWHC 2360; affirmed in [2004] EWCA Civ 675
- Contents and stock- in- trade held by insured in trust for which the insured is responsible - Meaning of goods in trust
- For which they are responsible –only covers insured’s legal liability for loss or damage to bailed goods
- Refused to overule Moffatts case (around for 80 yrs) QBE Insurance Ltd. v. Sim Lim Finance Ltd [1987] 2 MLJ 656
- S’pore CA endorsed English authorities
- Finance co let out on hire purchase industrial sewing machines. Hirer insured machines “held by them in trust or on commission for which they are responsible”
- Held: can recover full insurable value from Insurers. They were accountable to owners for balance of proceeds
- Q: competing claims, do you pay out? - Insurer receives notice from bailor not to pay out bailee
Privity issue. Policy intended to benefit bailor (owner), but bailee took out insurance. - Obiter : better not pay out as owner/bailor may have equitable interest in the proceeds–
though point not fully argued out and relief not asked for. - Decided before advent of (Contracts Rights of Third parties Act)
Differs from DG Finance Ltd v Scott *1999+ Lloyd’s Rep IR 283 North British & Mercantile Ins Co v Moffat (1871) LR 7 CP 25
- Tea merchants took insurance on “merchandise the assured’s own, in trust or on commission for which they are responsible” note – composite policy taken out.
Own: goods policy
Customers: liability policy
- Before fire, assured resold the tea to customers -book entries reflected it - Held: risk passed to purchasers - Vendors not responsible -no recovery - He merely covered his own bailee’s interest. Distinguished from Waters case. Sui Brothers Pte Ltd v Norwich Winterhur Ins (Far East) Pte Ltd [1993] 2 SLR 173
- Generally, the onus is on the insured either to prove or invoke presumptions that he has the insurable interest on the subject matter of insurance.
- It was held that the plaintiffs had successfully proved that they were pledgees of the goods insured and, therefore, had the requisite insurable interest to take out the policy at the material time
Contractor policies
NB. Some of these situations are termed co-insurance. The nature of the co-insured’s interest is relevant to whether he can be sued by the insurer exercising subrogation rights. This will be considered in the topic of Subrogation.
- Basis of rule: see Co-Op Retail Services v Taylor Young (HL) [2002] 1 WLR 1419 at 1438 Petrofina (UK) Ltd v. Magnaload Ltd *1983+ 2 Lloyd’s Rep 91 (READ) UKHC
- Major oil refinery extension. Contractor’s all risk policy
‘insurers will indemnify insured against loss or damage to prop” insured: contractors, subcontractors, owner
The term “subcontractor” was defined in the head contract as meaning: Any person to whom the preparation of any design, the supply of any plant or the execution of any part of the works is sub-contracted, irrespective of whether the contractor is in direct contract with such person.
item: works and temp works erected ... belonging to insured or for which they are responsible brought on to construction site
- H: This was a goods policy , each insured is insured in respect of whole contract works including property belonging to any other insured or for which any of the other insured was responsible (not just his own territory)
- Lloyd J held that the word “subcontractors” in the context of the policy must include subsubcontractors as well as subcontractors and that, accordingly, both parties fell with the definition of “the insured” under the policy.
It should be noted that (a) it was conceded that Magnaload were subcontractors within the wording of the policy; and (b) it was found as a fact that Mammoet, the second defendant, was contemplated as a contractor during the initial stages of the project - Lloyd J went on to hold that, on the ordinary meaning of the words, each of the named
insured (including all the subcontractors) was insured in respect of the whole of the contract works.
Relevantly, he thought that there were no words of severance to require him to hold that each of the named insured was insured only in respect of its own property. - No subrogation for negligence of co-assured, to avoid circuity of action
- these are cases not of recovery but of subrogation
- Rationale: commercial convenience, overlapping claims and cross claims /cost uneconomic
for small contractor etc
National Oilwell v Davy *1993+ 2 Lloyd’s Rep 582 - Petrofina’s principle folld
- Suppliers of parts for a floating oil production facility were co-insured under contractors all risk policy
- Pervasive interest in the work
Cf Deepak Fetilisers v Davy *1999+ 1 Lloyd’s Rep 387.
- Engineers who were co-insured under the policy. Once work is completed, your interest ceases.
- Interest was opportunity to perform job and earn retainer
- So if loss occurs after completion of project, no longer possess an ii in the property itself. (has to cover by liability policy for their own breach of contract or actionable negligence) Tyco Fire and Integrated Solutions (UK) Ltd v Rolls-Royce Motor Cars Ltd [2008] EWCA Civ 286, [2008] All ER (D) 16 (Apr)
Co-Op Retail Services v Taylor Young (HL) [2002] 1 WLR 1419 at 1438
- The purpose of this arrangement was to keep to a minimum the difficulties that are bound to arise where several different parties are working on a construction site. It had the obvious
advantage of making it unnecessary for any investigation to be carried out into the duties owed to each other by the various parties under their respective contracts in the event of loss or damage to the works from a cause such as fire. But the separate interests of TYP and HLP, who had their own insurance arrangements, were not covered by this policy.
NB. Meaning of sub-contractors in such contractors’ all risks policy: Bottomline: A matter of construction as to who is covered.
Hopewell v Ewbank Preece *1998+ 1 Lloyd’s Rep 448
- Dosen’t cover professional engineers; dosen’t cover professional advisers against their liability arising out of professional negligence – refers to people carrying out physical works of construction
- Usually professional engineers carry own professional liability policy Awang bin Dollah v Shun Shing Construction &Engineering [1997] 3 SLR 677
- Does not cover sub – sub contractors Wang Jin Fah v L&M Prestressing [2001] 4 SLR 529.
- Does not cover sub – sub contractors
Third party interests
Previous position There was lack of privity
Vandepitte v Preferred Accident Ins Corp of New York [1933] AC 70
- Car accident involving daughter who was driver. Party injured tried to recover damages against daughter from insurer .
- Nothing to show dad intended to contract on her behalf. No agency proved. - 3rd pty can’t sue insurer direct outside trust and agency
Williams v Baltic Insurance Association of London Ltd [1924] 2 KB 282\
- Insured against: “damage to loss of motor car, and against all sums for which the insured or any licensed personal friend or relative .. driving with consent .. shall be legally liable.” - Insurer: no ii insister’s potential liability
- Goods policy although he had no ii in sister’s liability, could claim for her and hold proceeds on trust for her
- But sister could not sue directly (modern position: motor insurance statue permits direct action). Waters v Monarch principle.
DG Finance Ltd v Scott *1999+ Lloyd’s Rep IR 283, but see comments in QBE Insurance Ltd v. Sim Lim Finance Ltd [1987] 2 M.L.J. 656
- Bailee has duty to account for monies exceeding own interest but no direct right of action against insurer for 3 pty
Cf. Australian High Court approach: Trident General Insurance v McNiece (1988) 165 CLR 107 - Dispensed with privity in ins policies – insurance was exception to privity rule Other exceptions, see Motor Vehicles (Third Party Risks & Compensation) Act (Cap. 189). See also s. 48 of the Australian Insurance Contracts Act (Cth)
- Entitlement of named persons to claim: Where a person who is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, that person has a right to recover the amount of the person's loss from the insurer in accordance with the contract notwithstanding that the person is not a party to the contract.
Current position
Contract (Rights of Third Parties) Act - THIS CAN BE EXCLUDED
- So always remember to ask if the CRTPA is excluded or not. S2: Right of third party to enforce contractual term
- 2. —(1) Subject to the provisions of this Act, a person who is not a party to a contract (referred to in this Act as a third party) may, in his own right, enforce a term of the contract if —
(a) the contract expressly provides that he may; or
(b) subject to subsection (2), the term purports to confer a benefit on him.
- (2) Subsection (1) (b) shall not apply if, on a proper construction of the contract, it appears that the parties did not intend the term to be enforceable by the third party.
- (3) The third party shall be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.
Alternative approach? Disclosed agency
- Undislosed principal – Siu Yin Kwan ; Talbot Underwriting v Nausch - For further reading, see Birds, “Agency and Insurance” *1994+ JBL 386.
Talbot Underwriting Ltd v Nausch, Hogan & Murray Inc *2006+ EWCA Civ 889, *2006+ Lloyd’s Rep. I.R. 531 ECA
- In proceedings against the brokers for a failure to procure suitable insurance on a
shipbuilders' all risks policy, the Court rejected the brokers' arguments that whilst the ship-builder was not expressly identified as a co-assured as instructed, cover extended by way of the "additional assured" clause or on the basis that the shipowner was an undisclosed principal.
The "additional assured" clause anticipated the possible nomination of the same. There had been none.
- The issue of whether the ship-owner could be an undisclosed principal would fail if insurers had expressed an intention that they were unwilling to contract with anyone other than those identified in the slip.
The omission of the ship-builder and all sub-contractors was an implicit indication that the insurers were not willing to contract with them.
- The non-disclosure of an undisclosed principal may well be material if it precludes a
potential subrogated recovery in the name of the identified assured against the undisclosed principal.
