Feasey v Sun Life Assurance

Feasey v Sun Life Assurance Co of Canada.

Court of Appeal (Civil Division). Ward, Waller and Dyson L JJ. Judgment delivered 26 June 2003.

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

This was an appeal from the judgment of Langley J ([2002] EWHC 868 (Comm); [2003] 2 CLC 936) deciding that Steamship Mutual Underwriting Association (Bermuda) Ltd (‘Steamship’) had an insurable interest in relation to a contract of insurance made between it and syndicate 957, that in relation to the reinsurance of syndicate 957 by Sun Life Assurance Co of Canada (‘Sun Life’) and Phoenix Home Life Mutual Insurance Co (‘Phoenix’) there was no non-disclosure or misrepresentation entitling Sun Life and Phoenix to avoid the reinsurance policy and that in relation to one period of the reinsurance Centaur Underwriting Management Ltd (‘Centaur’) had purported to write the same for Sun Life and Phoenix 50:50 when it had no authority to write for Phoenix. Syndicate 957 argued that Centaur had written the same 100 per cent for Sun Life but the judge ruled against syndicate 957 on that issue.

Steamship insured the liabilities of its members for personal injury or death. In about June 1995, rather than entering into a conventional reinsurance with syndicate 957, Steamship and the syndicate entered into a personal accident and illness master lineslip policy. The aim was to cover the liability of Steamship to its members. Under the master lineslip the syndicate agreed to pay fixed benefits to Steamship in respect of bodily injury and/or illness sustained by a person (‘an original person’) who was engaged in any capacity on board a vessel or offshore rig entered by a member with Steamship. That master lineslip was renewed from time to time. In particular, in about May 1998, it was renewed in respect of losses occurring on declarations attaching during three consecutive periods of 12 months from 20 February 1997 and, later, in respect of losses occurring on declarations attaching during the period 20 February 2000 to 20 February 2001.

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Syndicate 957 reinsured its liability under the master lineslip. That reinsurance for the years February 1998 to February 2000 was 50 per cent with Sun Life and 50 per cent with Phoenix. That reinsurance was negotiated by brokers acting for syndicate 957 and Centaur who were authorised at that stage to write for those two companies in the above proportions. On 1 October 1998 Centaur’s authority to write new business for Phoenix ceased. The brokers negotiated an extension of reinsurance with Centaur for a further year on 29 October 1998. It was that negotiation which gave rise to the authority point and the question whether Centaur was agreeing to take 100 per cent for Sun Life.

The reinsurers sought to avoid the reinsurance for alleged non-disclosure and misrepresentation and Sun Life took the point that Steamship had no ‘insurable interest’ in the lives and wellbeing of the original persons, when entering into the master lineslip for the three years from February 1997 and after, so that the insurance was illegal by virtue of s. 1 of the Life Assurance Act 1774. Alternatively Sun Life asserted that Steamship was seeking to claim more than the value of any insurable interest it had and was not permitted to do so by reason of s. 3 of the 1774 Act.

The judge dismissed the misrepresentation and non-disclosure claims. Steamship and the syndicate honestly believed when the relevant covers were agreed that the level of benefits had been set so as to eliminate any possibility of over-compensation for Steamship. Sun Life and Phoenix failed to establish the representations on which they relied, to the effect that the fixed benefits in the master lineslip constituted ‘a realistic estimate’ made by the syndicate of the average sums likely to be properly paid out by Steamship under the club’s rules for the 1998 and following years, and that Steamship’s risk ‘had been carefully and professionally appraised’ by the underwriter. It also had not been shown that that even if either representation relied upon was made it or they induced the reinsurers to write the business. The master lineslip was not in breach of s.1 of the 1774 Act since Steamship had a real and significant contingent economic interest in the lives and well being of persons on vessels entered by members with it. There was no principle or reason why the law should strike down the master lineslip as unlawful when it was accepted that in no sense did it amount to gaming or wagering, was not suggested to be contrary to any other policy consideration and was not commercially objectionable. Since there was no gaming or wagering s. 3 of the 1774 Act had no application. The reinsurers appealed on the insurable interest issue and the syndicate appealed on the authority issue.

Held, dismissing the appeal on both issues:

1. (Per Waller LJ) A sufficient interest was not demonstrated by showing that the policy was not a wagering contract. The question whether the contract of

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insurance could be correctly described as ‘gaming or wagering’ was a material factor. But the starting point was the question whether there was an interest not whether the contract was one of gaming or wagering and the critical question was not whether the policy was a wagering contract but whether the disputed policy was an insurance made ‘on the life or lives of any person or persons or on any other event or events whatsoever’ wherein Steamship had no interest. (Dalby v India and London Life Assurance Co (1854) 15 CB 365 considered.)

2. (Per Waller LJ) Following the amendment to s. 2 of the 1774 Act by s. 50 of the Insurance Companies Amendment Act 1973, Parliament must be taken not to have intended that s. 1 of the 1774 Act would make null and void an insurance on lives of persons unidentified as at the date of the policy, but within a description such as that given for ‘original persons’.

3. (Per Waller LJ) In a life policy the date at which the insurable interest must exist was the date of the taking out of the policy. Furthermore, that was the date for valuing the insurable interest. The value of an interest at the time of taking out the policy was assessed on the maximum pecuniary loss that the assured could suffer on the death of the life assured. (Dalby v India and London Life Assurance Co (1854) 15 CB 365 and Hebdon v West (1863) 3 B & S 579 considered.)

4. (Per Waller LJ) The following principles could be derived from the authorities: (i) It was from the terms of the policy that the subject of the insurance must be ascertained. (ii) It was from all the surrounding circumstances that the nature of an insured’s insurable interest must discovered. (iii) There was no hard and fast rule that because the nature of an insurable interest related to a liability to compensate for loss, that insurable interest could only be covered by a liability policy rather than a policy insuring property or life. (iv) The question whether a policy embraced the insurable interest intended to be recovered was a question of construction. The subject or terms of the policy might be so specific as to force a court to hold that the policy failed to cover the insurable interest, but a court would be reluctant so to hold. (v) It was not a requirement of property insurance that the insured must have a ‘legal or equitable’ interest in the property as those terms were normally understood. It was sufficient for a sub-contractor to have a contract that related to the property and a potential liability for damage to the property to have an insurable interest in the property. It was sufficient under s. 5 of the Marine Insurance Act 1906 for a person interested in a marine adventure to stand in a ‘legal or equitable relation to the adventure’. That was intended to be a broad concept. (vi) In a policy on life or lives the court should be searching for the same broad concept. It might be that on an insurance of a specific identified life, it would be difficult to establish a ‘legal or equitable’ relation without a pecuniary liability recognised by law arising on the death of that particular person. There was however no

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authority which dealt with a policy on many lives and over a substantial period and where it could be seen that a pecuniary liability would arise by reference to those lives and the intention was to cover that legal liability. (vii) The interest in policies falling within s. 1 of the 1774 Act must exist at the time of entry into the policy, and be capable of pecuniary evaluation at that time. Applying those principles it was not an abuse of language to say that Steamship had an insurable interest in the lives and wellbeing of original persons as defined by the policy and no reason not to construe the subject of the policy as embracing that insurable interest. Accordingly the judge was right that the policy was not in violation of s. 1 of the 1774 Act. (Per Dyson LJ) Authority did not compel the conclusion that, as a matter of law, an insurable interest in a contingency based on an insured’s potential liability for that contingency could not be covered by a policy on life properly framed so as to embrace that insurable interest and on that basis the decision of the judge on the insurable interest issue should be upheld. (Per Ward LJ dissenting) ‘Original person’ meant anyone who suffered a bodily injury on board or in relation to an owner’s vessel whether or not the owner was liable in negligence to compensate him. The insurer could have no interest in the life of such a stranger. A double contingency – death/bodily injury and potential liability therefor – was the subject matter of the insurance as described in the policy and Steamship did not have an insurable interest in it. The legal relationship which could give rise to an insurable interest was the club rule that the club would indemnify the member in respect of compensation paid by the member in relation to that death or injury. But that depended upon the member’s liability to compensate being established. Until that liability was established, the death or injury per se created no more than an expectation of disadvantage and, on the authorities, that was not enough to create an insurable interest.

5. (Per Waller LJ) The judge was right that the reinsurers had not shown that Steamship was seeking to recover an amount in excess of the value of the interest as at the date of the policy in breach of s. 3 of the 1774 Act.

6. The judge reached the right conclusion on the authority issue. It was fallacious to argue that because Centaur no longer had authority from Phoenix it must have committed Sun Life to the whole of the risk. It was not sufficient to establish that Centaur had such authority (which it did). It was necessary to see whether in fact it exercised that authority and Centaur did not purport to bind Sun Life to 100 per cent cover.

The following cases were referred to in the judgments:

Anderson v Morice (1875) 10 CP 609; (1876) 1 App Cas 713.

Baker v Black Sea and Baltic General Insurance Co Ltd [1996] LRLR 353 (CA). Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484 (QBD).

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Cepheus Shipping Corp v Guardian Royal Exchange Assurance plc (The Capricorn) [1995] 1 Ll Rep 622.

Commonwealth Construction Co Ltd v Imperial Oil Ltd (1976) 69 DLR (3rd)

558.

Constitution Insurance Co of Canada v Kosmopoulos (1987) 34 DLR (4th) 208. Co-operative Retail Services Ltd v Taylor Young Partnership (2000) 74 Con LR

12 (CA); [2002] UKHL 17; [2003] 1 CLC 75.

Dalby v India and London Life Assurance Co (1854) 15 CB 365; 139 ER 465. Deepak Fertilisers and Petrochemicals Corp Ltd v ICI Chemicals and Polymers Ltd [1999] l Ll Rep 387.

Glengate-KG Properties Ltd v Norwich Union Fire Insurance Society Ltd [1996]

CLC 676.

Godsall v Boldero (1807) 9 East 72; 103 ER 500. Good v Elliott (1790) 3 TR 693; 100 ER 808. Griffiths v Fleming [1909] 1 KB 805.

Halford v Kymer (1830) 10 B & C 724; 109 ER 619. Hambro v Burnand [1904] 2 KB 10.

Harse v Pearl Life Assurance Co [1903] 2 KB 92 (KBD). Hebdon v West (1863) 3 B & S 579; 122 ER 218.

Hopewell Project Management Ltd v Ewbank Preece Ltd [1998] 1 Ll Rep 448. Law v London Indisputable Life Policy Co (1855) 1 K & J 223; 69 ER 439. Lowry v Bourdieu (1780) 2 Dougl 468; 99 ER 299.

Lucena v Craufurd (1806) 2 Bos & Pul (NR) 269; 127 ER 630. Macaura v Northern Assurance Co Ltd [1925] AC 619. Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211.

National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Ll Rep 582. Paterson v Powell (1832) 9 Bing 320; 131 ER 635.

Petrofina (UK) Ltd v Magnaload Ltd [1983] 2 Ll Rep 91; [1984] QB 127. Sharp v Sphere Drake Insurance (The Moonacre) [1992] 2 Ll Rep 501. Simcock v Scottish Imperial Insurance Co (1902) 10 SLT 286.

Stock v Inglis (1884) 12 QBD 564.

Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1991] 2 Ll Rep 288

(QBD).

Wilson v Jones (1867) LR 2 Ex 139.

Julian Flaux QC and David Lord (instructed by Lovells) for the syndicate. Dominic Kendrick QC and Simon Kerr (instructed by Clifford Chance) for Sun Life and Phoenix.

Anthony Boswood QC and Richard Handyside (instructed by Richards Butler) for Steamship. A B C D E F G H

JUDGMENT

Waller LJ:

1. This is an appeal from the judgment of Langley J given on 17 May 2002 ([2002] EWHC 868 (Comm); [2003] 2 CLC 936). Only certain points are live on the appeal. By his judgment Langley J decided that Steamship Mutual Underwriting Association (Bermuda) Limited (‘Steamship’) had an insurable interest in relation to a contract of insurance made between it and syndicate 957. He further found that in relation to the reinsurance of Syndicate 957 by Sun Life Assurance Company of Canada (‘Sun Life’) and Phoenix Home Life Mutual Insurance Company (‘Phoenix’) there was no non-disclosure or misrepresentation entitling Sun Life and Phoenix to avoid the reinsurance policy. He further found however that in relation to one period of the reinsurance Centaur Underwriting Management Limited (‘Centaur’) had purported to write the same for Sun Life and Phoenix 50:50 when they had no authority to write for Phoenix. Syndicate 957 argued that Centaur had written the same 100% for Sun Life but the judge ruled against Syndicate 957 on that issue.

2. The non-disclosure and misrepresentation aspects have been abandoned on the appeal. The point which has taken up the greatest proportion of time on the appeal is the insurable interest point. A much shorter time was spent dealing with the authority point. That point is dealt with in the judgment of Dyson LJ with which I agree. I will deal with the insurable interest point.

How does the insurable interest point arise?

3. Steamship insured the liabilities of their members for personal injury or death. In about June 1995, rather than entering into a conventional reinsurance with Syndicate 957, Steamship and Syndicate 957 entered into a Personal Accident and Illness Master Lineslip Policy. The aim was to cover the liability of Steamship to its members. Under the Master Lineslip the syndicate agreed to pay fixed benefits to Steamship in respect of bodily injury and/or illness sustained by a person (an original person) who was engaged in any capacity on board a vessel or offshore rig, entered by a member with Steamship. That Master Lineslip was renewed from time to time. In particular, in about May 1998, it was renewed in respect of losses occurring on declarations attaching during three consecutive periods of 12 months from 20 February 1997 and, later, in respect of losses occurring on declarations attaching during the period 20 February 2000 to 20 February 2001.

4. Syndicate 957 reinsured its liability under the Master Lineslip. That reinsurance for the years February 1998 to February 2000, was 50% with Sun Life and 50% with Phoenix. That reinsurance was negotiated by brokers acting for Syndicate 957 and Centaur who were authorised at this stage to write for those two companies in the above proportions. On 1 October 1998 Centaur’s authority to write new business for

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Phoenix ceased. The brokers negotiated an extension of reinsurance with Centaur for a further year on 29 October 1998. It is that negotiation which gives rise to the authority point and the question whether Centaur was agreeing to take 100% for Sun Life.

5. It is Sun Life who have taken the point that Steamship had no ‘insurable interest’ in the lives and wellbeing of the original persons, when entering into the Master Lineslip for the three years from February 1997 and after. They contend that the insurance is illegal by virtue of section 1 of the Life Assurance Act 1774. In the alternative Sun Life assert that Steamship are seeking to claim more than the value of any insurable interests they had, and are not entitled to do so by virtue of section 3 of the same Act.

6. It is not attractive to contemplate that where insurers have carefully crafted a policy which was intended to be enforceable by Steamship, a point on insurable interest could arise. As quoted in The Law of Insurance Contracts (4th edition) by Professor Malcolm Clarke there is an observation of Mance J in The Capricorn [1995] 1 Ll Rep 622 at 641 that if insurers,

‘make a contract in deliberate terms which covers their assured in respect of a specific situation, a court is likely to hesitate before accepting a defence of lack of insurable interest.’

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

‘In my opinion it is the duty of a court always to lean in favour of an insurable interest, if possible, for it seems to me that after underwriters have received the premium, the objection that there was no insurable interest is often, as nearly as possible, a technical objection, and one which has no real merit, certainly not as between the assured and the insurer. Of course we must not assume facts which do not exist, nor stretch the law beyond its proper limits, but we ought, I think, to consider the question with a mind, if the facts and the law will allow it, to find in favour of an insurable interest.’

8. Be all that as it may, there is no doubt that the argument on behalf of Sun Life is a formidable one and cannot by any means simply be brushed aside.

The facts

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

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injury ‘carve out’ and mixed indemnity and fixed benefit basis. It seems that in September 1994 Lloyd’s announced changes to its risk codes for the 1995 year of accounts. From January 1995 Accident and Health policies could only be classified as Personal Accident Insurance if payments were on a fixed benefit basis. Liability or contingent cover was treated as long tail business for reserving purposes. Personal Accident cover was treated as short tail and so did not require provision of substantial reserves to be held for long periods.

10. Mr Cackett the underwriter for Syndicate 957 wanted to preserve the substantial 1994 premium income received by the Syndicate from Steamship if he properly could, but also to maintain the PA classification. The PA concept was Mr Cackett’s creation. The basic idea was to provide a fixed level of benefit payable on proof of the fact of death, PTD (Permanent Total Disability) or TTD (Temporary Total Disability) of an Original Person with medical expenses payable in addition. The level of benefits could not and would not track with any precision the amount of the actual liability of the member of Steamship or Steamship in respect of the death, PTD or TTD relating to the individual original person. But, it was intended that overall Steamship’s recovery under the Master Lineslip should track as closely as possible Steamship’s overall exposure.

11. Langley J demonstrated that in the drafting of the original wording there was a tension between attempting to keep the Master Lineslip within the relevant Lloyd’s code, and providing the cover which Steamship desired. It is doubtful to what extent those drafting points can be relevant to the actual construction of the policy but, as Langley J pointed out, it was in that context that the word ‘liability’ in respect of claims as against Steamship became ‘obligations’ of Steamship, wording to which I will have to return. In addition, there was evidently in the draft at one time a provision which provided for ‘adjustment’ and expressly for Steamship to make repayment where it transpired that fixed benefits exceeded the club’s liability to a member, but that provision was not maintained.

12. There was a dispute at the trial whether Steamship were intending to cover legal expenses incurred by virtue of the fixed benefits received. The judge found that the setting of the benefit levels was intended to contribute to Steamship’s exposure including legal costs.

13. The first lineslip providing this new form of cover was effected for the period 20 February 1995 to 20 February 1996. The terms and wording were finally agreed between Syndicate 957 and Steamship in June 1995. The Master Lineslip had been signed earlier for 100% by Mr Cackett on behalf of Syndicate 957 naming Lloyd Thompson as the lineslip holder.

14. The first declaration under the Master Lineslip was accepted on 16 June 1995. It named Steamship as the insured. It was to pay Steamship benefits ‘calculated in

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accordance with the schedule of compensation’ contained in the wording for death, PTD or TTD (and medical expenses in relation to TTD only) as defined in the wording. The policy limits were as specified in the schedule of compensation but also subject to a maximum of $1m for any one event and ‘in a maximum amount recoverable in all equivalent to 250% of the finally adjusted gross premium payable.’ There was an aggregate deductible of 6.6% of Steamship’s net premium income or $1.5m whichever was the greater. A deposit premium of $5.5m was payable in 6 equal quarterly instalments starting on 20 May 1995 and was adjustable quarterly at 32.5% of Steamship’s net premium income received in respect of member entries during the policy period.

The wording

15. The Policy Wording was scratched in June 1995 by Syndicate 957 and Steamship. Essentially the same wording was used in all years. I will indicate variations. The insuring clause was expressed in terms that ‘if an Original Person sustains Bodily Injury and/or Illness we will pay to the Insured in accordance with the terms and conditions of this Insurance and according to the Schedule of Compensation after the claim has been substantiated under this Insurance’.

16. Clause 1 contained a number of relevant definitions. ‘The Insured’ was Steamship.

17. ‘Entered Vessel’ was defined as:

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

18. ‘Member’ was defined as:

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

19. ‘Original Person’ was defined as:

‘(i) any person … while engaged during the Policy Period in any capacity on board or in relation to an Entered Vessel as part of her complement, but shall include any person who is engaged by a Member during the Policy Period at the time of the Accident … and is seconded to another vessel … pursuant to a contract entered into by a Member and/or (ii) other persons while engaged during the Policy Period in any capacity on board or in relation to any Entered Vessel.’ 20. PTD was defined as ‘Bodily Injury and/or Illness which actually prevents the Original Person from attending to his or her usual business or occupation and/or

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assuming the same work activities as those which he or she was employed to perform immediately prior to the Accident or the manifestation of the Illness and which lasts twelve months and at the expiry of that period appears to be such that the Original Person will not thereafter be able to resume attending to such usual business or occupation and/or assume such same work activities’.

21. TTD was defined as ‘Bodily Injury or Illness which actually prevents the Original Person from attending to his or her usual business or occupation and/or assuming the same work activities as those which he or she was employed to perform immediately prior to the Accident or manifestation of the Illness’.

22. The Wording contained (Clause 2) a limited number of exclusions such as death or disablement arising out of war (and the like) and mental or psychiatric illness.

23. Clause 3 provided for claims notification and settlement of benefits. Notification of claims by Steamship had to be accompanied by ‘reasonable documentary proof’ of the death or disablement of the Original Person, the date of the accident and inward claim, details of the circumstances of the accident and injury and, if the claim was for TTD, an estimate of the period during which the disablement appeared likely to continue and details of any medical expenses paid by Steamship, or, if the claim was for PTD, confirmation that disablement appeared likely to continue for not less than 12 months. In the event of death or PTD Syndicate 957 agreed on receipt of such notification to pay Steamship the Capital Sum specified in the Schedule of Compensation. In the case of TTD, also on receipt of such notification, Syndicate 957 agreed to

‘pay the weekly benefit as specified in the Schedule of Compensation for the period of Disablement together with any Medical Expenses. Should the period of Temporary Total Disablement (either as estimated by the Insured or as actually suffered by the Original Person) exceed 152 weeks and should the Insured confirm to Underwriters that it appears that the Original Person will not thereafter be able to resume attending to his or her usual business or occupation and/or to assume the same work activities …. Underwriters … will pay to the Insured the Capital Sum Insured as if the Original Person had suffered Permanent Total Disablement less any benefit (including Medical Expenses) already paid ….’

24. Payment of the benefits was to be made no later than 30 days after submission of bordereaux (Clause 4); claims notified 24 months after expiry of the Policy Period were not covered (Clause 5).

25. In place of the ‘adjustment’ clause referred to in paragraph 10 above was Clause 6 entitled ‘Alteration in Circumstances’ reading:

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‘Should the Insured at any time become aware that any confirmation or information provided to Underwriters in connection with a claim hereunder is not, or is no longer, accurate or applicable, the Insured shall immediately inform Underwriters and at the same time return to Underwriters any amount by which all payments made by Underwriters hereunder exceed the amount (if any) which would actually be payable hereunder in accordance with the accurate or applicable confirmation or information.’

26. The Schedule of Compensation (Clause 9) in the original wording provided for different levels of compensation for three geographical areas: the highest level where the Entered Vessel or Member was registered or had a place of business or conducted operations in North America, half those levels for Europe, Japan or the Asean group of trading nations, and half again for anywhere else. The North American levels were US $1m for death and PTD and $4000 a week for a maximum of 152 weeks for TTD. The maximum limits (also set out in Clause 9) were $1m in respect of any one Original Person and $1m in all for any claim or claims caused by the same occurrence or series of occurrences arising out of the same event. In subsequent wordings (where appropriate) the Schedule of Compensation referred to ‘as declared’ or was otherwise changed to reflect the terms agreed for the relevant period of cover.

27. The judge made the following comments. There is challenge to only one of those comments and I will set them out in full:

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

(ii) Although Ince & Co (and Mr Cackett) were concerned (because of the Audit Codes) to avoid references to Steamship’s own liability to the Club’s Members and specifically removed the adjustment provisions which would have resulted in re-payment of “over-recoveries” it is I think clear that both Steamship and Syndicate 957 intended that claims would only be sustainable under the cover in cases in which Steamship was itself liable to indemnify the Member concerned in respect of the accident and injury to the Original Person in question. Mr Boswood QC submits that on analysis the wording in any event requires as much; Mr Kendrick submits it does not. On any view Mr Kendrick is right in submitting that such a requirement (if any) can only be found in the depths of the definitions: see (iii).

(iii) Mr Boswood’s submission is as follows. Syndicate 957 agreed to make the fixed benefit payments if an “Original Person” suffered injury. Original Persons are persons engaged on an “Entered Vessel”. An Entered Vessel is one entered by a “Member” of the Club with Steamship during the relevant period in respect of any of the risks “enumerated” in the wording itself. A Member has to be a person interested in any Entered Vessel and a person to whom Steamship “has

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obligations under its Rules … in respect of the Bodily Injury …suffered by an Original Person”. That, submits Mr Boswood, has the effect that unless there is a liability on Steamship to the Member for the injury (which there would not be if, for example, any damages payable to the Original Person was less than the member’s deductible) no recovery could be made or, if made, retained under the Policy Wording. Mr Kendrick submits that Mr Boswood’s submission places more weight on the word “obligations” than it can bear. He submits that Steamship owed “obligations” under the Club’s Rules to investigate claims. But I agree with Mr Boswood that the relevant Rule (Rule 28) does not in ordinary language impose an obligation on Steamship to investigate claims on Members but bestows a right on Steamship to do so. In my judgment Mr Boswood’s submission on the construction of the Wording is also right and, however obscurely, reflects what both Mr Cackett and Mr Martin said and I find was intended.

(iv) The definition of PTD was one of some width. It did not, for example depend on earning capacity. In the case of rig workers there might be a particular risk that an otherwise not very serious injury would prevent an Original Person from resuming arduous duties leading to a PTD payment within the definition. Mr Cackett was alive to the possibility of a TTD becoming a PTD and indeed the wording expressly addressed it in Clause 3 (see paragraph 53). The possibility, however, might well not be manifest for a considerable time as the Clause itself contemplates the elapse of 152 weeks before a determination might be made. That is of significance because on the evidence in the event the major if not the only source of alleged “overpayments” to Steamship is the number of claims which started as TTDs but came later to be classified as PTDs.

(v) Mr Cackett had a close involvement in drafting the wording yet nothing in it or otherwise required Steamship to include or provide figures for paid or incurred claims by Members on Steamship. The trigger for payment of the benefit was simply proof of the death or disablement of an Original Person: Clause 3. (vi) “Original Persons” were not necessarily identifiable at inception. They included those who came to work on an Entered Vessel at any time during the period of the cover.

(vii) There was an aggregate excess and limit (in the event $1.5m and 17.25m respectively).’

28. Mr Kendrick challenges the judge’s conclusion at (iii). Mr Boswood QC albeit seeking to uphold the judge’s construction submits that it makes no material difference if his submission is not accepted. My view is that the judge was right in construing the policy wording as he has.

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

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

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

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

Excess of loss

33. Reduction in the maximum death and PTD benefit level from $1m to $500K led to Steamship taking out excess of loss insurance for losses on members’ claims which exceeded the relevant limit. The effect of this excess of loss insurance was that if the relevant limit in the Master Lineslip was $500K, Steamship would recover that sum from Syndicate 957 even where the claim by the member was less than $500K, but where a claim exceeded $500K Steamship obtained 100% of recovery from the combination of the Master Lineslip and the excess of loss cover. The judge records finding that Mr Johnston of Steamship was genuinely surprised when it was put to him in cross-examination that on this basis Steamship could not make a loss but only a profit on such claims. The judge found that it was not seen in those terms when the excess loss insurance was taken out.

34. In March 1996 Mr Cackett gave notice of his intention to leave Syndicate 957 and Mr Feasey took over the reins from then onwards. Mr Cackett established Centaur in Bermuda shortly thereafter.

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35. The lineslip was further renewed in 1996/7 Mr Feasey dealing with the renewal. Mr Feasey, according to the judge, said in evidence that by that time he was comfortable that Syndicate 957 was not paying out more to Steamship than Steamship was paying its members. That belief was based on the exercise carried out with Mr Cackett in January and February 1996 which had resulted in the agreed reductions referred to above.

Sun Life and Phoenix

36. On 26 August 1996 Sun Life entered into an underwriting management agreement with Centaur providing Mr Cackett on behalf of Centaur with underwriting authority for reinsurance business. On 12 September 1996 Phoenix entered into an underwriting management agreement on substantially the same terms with Centaur.

37. The Master Lineslip was again renewed for 1997/8. It seems some limits were changed, further aggregate excesses were introduced but individual aggregate limits were substantially increased with an overall limit of $33.56m which was less than the total of the individual limits. The ‘qualifying period’ for a TTD was reduced from 152 weeks to 104 weeks. Mr Feasey also introduced ‘franchises’ the effect of which was to exclude from the cover losses which did not exceed the franchise figure until exhaustion of the franchise retention figure and to delay presentation of claims which did exceed the figure. For example, in the case of a TTD loss, the loss had to exceed the franchise level before it could be claimed so that if the weekly benefit level was $1,000 and the franchise $25,000 the claim could only be made if the TTD lasted for 25 weeks for more.

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

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

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

39. The judge’s description is not in issue and I adopt the material parts.

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

41. The Declaration described the Type of Insurance as ‘Personal Accident and/or Illness’ and the Insured as Steamship. A Wording was attached in the same terms as the original Policy Wording (paragraphs 14-24 above) save that the Schedule of Compensation was ‘as declared’ each declaration. The maximum amount recoverable was limited in respect of each individual member to 150% of original gross annual premium. Figures providing further limits were as set out in the schedule to the judge’s judgment. There was an overall limit of $100,560,000 for the whole period. The ‘Information’ was described as ‘as presented and noted by the Underwriter at the inception of the Original Member Entries.’ The weekly TTD benefit was limited to a maximum of 104 weeks in all. The list of Member Entries for each year recorded for 1997/8 in the case of Falcon alone that the cover was in respect of ‘losses occurring or first notified’ to Steamship in that period. In all other Member entries it was in respect only of ‘losses occurring.’ The effect was that the original 1997/8 cover for Falcon was enlarged to cover claims notified in 1997/8 but arising in earlier years. Those claims were of course, already known at April 1998. The figures (at August 1998) in fact show estimates for such claims of some $4.5m.

42. For the years 1998/00 the weekly TTD benefit was reduced from $1750 to $1000 for all Member Entries and the death/PTD benefit was ‘equalised’ at $400,000 for all Member Entries which involved an increase in the limits in 1997/8 in two cases and a decrease (from $500,000) in three cases. Mr Feasey assessed the benefit levels on the basis of ‘as if’ figures between Steamship and the Syndicate. He had no figures to assess the comparative position between Steamship and its members.

43. Mr Feasey said that after the dispute which had led to the retrospective reduction in the TTD figure in 1996 the business had gone forward largely on the basis of an assumption that the level of benefits was such that Steamship would not be over-compensated ‘in the round’ and the issue was what was the Syndicate prepared to offer and whether Steamship thought it worthwhile to buy what was offered at the price proposed. Mr Feasey also agreed that because Steamship should not be over-compensated it was prudent to ‘continue monitoring and adjusting’ to minimise any mismatch. But that did not, (the judge found despite Mr Kendrick’s

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submissions), involve a detailed exercise on Steamship’s estimated reserves. Mr Feasey did not undertake and never suggested he had undertaken such an exercise. He said he relied on the 1996 exercise, the Falcon figures, Mr Johnston’s letter, his knowledge and experience of PA business and the size of awards to justify his confidence that Steamship was not being compensated and would not be over-compensated by the benefit levels he was offering. He had of course reduced the levels further, particularly the TTD figure.

44. No witness called for Syndicate 957 could recall why the covers had been written for three years. There is no doubt that the Master Lineslip provided a significant part of the Syndicate’s premium income. Those called for Syndicate 957 believed the terms were now such that there was no question of over-compensating Steamship and that it was valuable to secure the income for a period of time when the Syndicate was under pressure from outside competition.

45. For Steamship the evidence was that the enlargement came about because Steamship asked for it. Mr Johnston, head of underwriting at Steamship, said Syndicate 957 had requested a 3-year contract:

‘It became very obvious to us that they were extremely anxious to place this contract. We therefore took the position that we might as well see what we can negotiate out of this to our advantage, and one of the things that occurred to me was that we might as well ask them whether they would be prepared to consider losses that were going to arise during the course of the year that had not as yet arisen.’

46. Mr Johnston added that the Falcon cover had not burnt through by that time. Mr Johnston also said that he did not think it was for Steamship to calculate any appropriate benefit level and the Club did not do so. They were offered a cover and had to decide if it was worth buying. Mr Martin, the claims partner of Steamship, said the same. Steamship did not expect the protection to be the equivalent of a full reinsurance of Steamship’s first retained layer and the question was would it provide a substantial protection. Mr Martin said his evaluation in 1998 would have been that a death claim would certainly cost more than $500K, a PTD would cost more than $500K and a TTD more than $1,000 a week.

The Sun Life and Phoenix reinsurance 1998/00

47. In May 1998 Mr Cackett for Centaur agreed on behalf of Phoenix and Sun Life 50:50 to renew the four reinsurances of Syndicate 957. The contracts covered losses on declarations attaching in the period 20 February 1998 to 20 February 2000.

48. In March 1998 Mr Cackett for Centaur gave six months notice to Phoenix to terminate the underwriting management agreement between Centaur and Phoenix.

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The effect of that termination was that Centaur could write no new business for Phoenix after 1 October 1998 but would continue to deal with existing business with the authority of Phoenix. It is the writing of an extension to this policy by Mr Cackett on 29 October which is the subject of the authority point.

The Reliance ‘top-up’

49. On 29 June 1998 Mr Cackett provided Mr James with a non-binding indication for what has been referred to as the ‘top-up’ or ‘sideways’ cover of Steamship. The cover was to protect Steamship for the 3 years at 20 February 1997 in the event that the Master Lineslip (the disputed policy) total limits (overall or for individual members) were exhausted.

50. On 17 July 1998 Lloyd Thompson wrote to Mr Johnston with an indication for the top-up cover with a maximum limit of $40m. The indication came from Reliance National but as a front for Centaur and Mr Cackett. The premium quoted was $15m. It was Reliance that ultimately signed the slip on 30 September 1998. The details appear in the judge’s judgment at paragraphs 115-120.

51. In February and March 1999 Steamship notified substantial claims on the top-up policy with Reliance essentially arising from the deterioration of the Falcon declaration under the Master Lineslip. Mr Cackett instructed that an audit be carried out and it was this audit which led indirectly to the proceedings.

52. The debate which ensued on what sums Steamship were entitled to recover under the disputed policy and the debate on figures which was continuing right up until judgment in the trial below, is set out from paragraphs 132-143 of the judge’s judgment. The conclusion of the judge by reference to the figures and the evidence is to a large measure not challenged and it is right to set it out in full:

‘144. As I have said, the figures and the evidence and submissions about them leave considerable uncertainties but I will summarise the conclusions which I have drawn about them as a matter of probability:

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

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

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(ii) There is no evidence to suggest that the TTD figure of $1000 a week was greater than the cost of the same claims by members. The probability is that it was less.

(iii) The only basis on which the figures now show that Steamship has made a profit or been over-compensated is the inclusion of the recoveries from the excess of loss and Reliance top-up covers.

(iv) The death benefit figure has generally been ignored in evidence, possibly because there were only about 5 death claims in each year.

(v) The numbers of PTD claims which have arisen was unexpected and unforeseen by Steamship in 1998 when the relevant covers were agreed and for some time thereafter. It is the numbers of PTD claims (and the existence of the excess of loss and top-up reinsurances which covered them) which has led to any over-compensation.

(vi) Both Steamship and Syndicate 957 honestly believed when the relevant covers were agreed in 1998 that the level of benefits had been set so as to eliminate any possibility of over-compensation for Steamship. Neither had any information to suggest the contrary and each could justify its belief on the information available and the history of reducing levels of benefit. In the case of Steamship that is so even with the knowledge of the excess of loss and Reliance top-up insurance it acquired. As stated I accept Syndicate 957 was unaware of those contracts.

(vii) Even allowing for recoveries under the excess of loss and top-up contracts the estimated level of ‘over-recovery’ in 1997 and 1998 and 1999 whilst substantial (paragraph 139) cannot, I think, be characterised as of a size such as to change the character of the transaction from insurance to gaming or a wager. Moreover there is probably some unknown balancing factor resulting from under-recovery on TTD claims.’

Does s. 1 of the 1774 Act render the disputed policy illegal and void?

53. The 1774 Act is entitled:

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

The Preamble states:

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

Section 1 provides:

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

Section 2 provides:

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

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

54. I should deal at the outset with a point argued by Mr Boswood on the construction of section 1. He took us back to the 18th and 19th centuries and the context in which the 1774 Act was passed. Two things were of importance in that context. First, gaming and wagering outside the insurance context was lawful and enforced by the courts. That was so until the passing of the Gaming Act 1845. Second, throughout the 18th and first half of the 19th Century it was believed that all insurance contracts including contracts of life assurance, were by their nature contracts of indemnity. Godsall v Boldero (1807) 9 East. 72 was decided on that basis and was only overruled by the Court of Exchequer Chamber in Dalby v India and

London Life Assurance Co (1854) 15 CB 365. Mr Boswood relied on the Marine Insurance Act 1745 and its preamble. He said that it was clear from the preamble that

the mischief being aimed at by the act was the verbal formulations used to create a wager policy. The Act, he submitted, was not concerned with saying that an assurance could not be enforced where the insured had no interest in the ship or goods the subject matter of insurance; that was self evident anyway. Rather, its object was to prohibit wager policies, by specifying the various forms of words that could be used to create such policies and saying that the use of such words invalidated the contract.

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55. Mr Boswood suggested that the same form of reasoning ought to apply to section 1 of the 1774 Act. Since life insurance was believed to be a contract of indemnity it went without saying that an interest in the subject matter was necessary to support such a policy, and the section was concerned with the form of policy i.e. that there should be no form of policy dispensing with proof of interest and no form of policy in the form of a gaming or wagering contract.

56. Mr Boswood submitted that ‘interest’ meant simply ‘interest sufficient to prevent the policy being a wagering contract’. This submission enabled Mr Boswood to say that since Mr Kendrick, for Sun Life, made no case that the disputed policy was ‘gaming or wagering’, that was in effect the end of the case.

57. In his written submissions Mr Boswood relied on a dictum of Mr A D Colman QC, as he then was, in The Moonacre [1992] 2 Ll Rep 501 at 509-510 where he said:

‘Neither the words of any statute since 1845 nor any judicial announcement suggest that there should be a category of contracts of insurance which were not wagering contracts but which on account of the absence of an ‘insurable interest’ should not be enforceable.’

Mr Boswood in his oral submissions felt unable to support that dictum appreciating that there were a number of authorities which concentrated on the question whether there was ‘an insurable interest’ apart from any concept of wagering.

58. I reject Mr Boswood’s submission that because no-one in this case suggests that the policy was a wagering contract, a sufficiency of interest is demonstrated. The question whether the contract of insurance can be correctly described as ‘gaming or wagering’ is a material factor. But as Mr Boswood in reality has to accept, once contracts of life insurance were held not to be contracts of ‘indemnity’ that did not abolish the need for an interest in the life. Indeed the whole concern of the court in

Dalby was as to whether the Anchor Life Assurance Company had ‘an interest’ in the

life of the Duke of Cambridge within section 1 of the 1774 Act, albeit the court concluded that the contract was not one of indemnity. There are furthermore dicta in the authorities which support the view that the starting point is the question whether there is interest not whether the contract is one of gaming or wagering (see Lord Buckmaster in Macaura v Northern Assurance Co Ltd [1925] AC 619 at 631 and Lord Mansfield in Lowry v Bourdieu (1780) 2 Dougl 468 at 470).

59. The critical question is not whether the policy is a wagering contract but whether the disputed policy is an insurance made ‘on the life or lives of any person or persons or on any other event or events whatsoever’ wherein Steamship has no interest. A B C D E F G H

60. It is convenient to deal at this stage with a second point on construction of the 1774 Act which arises from the amendment to section 2 by section 50 of the

Insurance Companies Amendment Act 1973. Section 50 provided:

‘(1) Section 2 of the Life Assurance Act 1774 (policy on life or lives or other event or events not valid unless name or names of assured etc. inserted when policy is made) shall not invalidate a policy for the benefit of unnamed persons from time to time falling within a specified class or description if the class or description is stated in the policy with sufficient particularity to make it possible to establish the identity of all persons who at any given time are entitled to benefit under the policy.

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

61. Section 2 of the 1774 Act has no direct application to the disputed policy since the person to benefit is Steamship and they are named. But the effect of section 2 in situations where the persons to benefit are ‘within a specified class or description’ has an impact on the true construction of section 1. Section 2 as amended would appear to have no impact at all if the proper construction of section 1 was to render null and void policies on the lives of persons who were unidentified as at the date of the policy but would fall ‘within a specified class or description’ of ‘sufficient particularity to make it possible to establish the identity of all persons who at any given time are entitled to benefit under the policy.’

62. The words ‘within a specified class or description’ are very wide words. Mr Kendrick would suggest that they must be confined to an identifiable group such as employees. I do not see why that should be so. The definition of Original Person in the disputed policy is very wide, but if one poses the question whether the ‘description’ is of sufficient particularity to make it possible to establish the identity of all persons who at any given time would be entitled to benefit under the policy if the policy had been for the benefit of Original Persons, the answer seems to me to be that it would.

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

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

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‘Nature of insurable interest. Insurable interest may be described loosely as the assured’s pecuniary interest in the subject-matter of the insurance arising from a relationship with it recognised in law.’

The footnote to that definition says ‘see para. 1-74, post, and the definitions attempted in paras. 1-49 and 1-120, post’.

65. Paragraph 1-49 says:

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

66. At paragraph 1-74 it is said:

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

At paragraph 1-75 it is said:

‘Besides being capable of valuation, the interest must be of such a nature that the law will take cognisance of it. The assured must show that he will or may lose some legal or equitable right or be placed under the burden of some legal liability in consequence of the death of the person whose life is insured. A mere expectancy or hope of future pecuniary benefit from the prolongation of the life insured or of the fulfilment by him of moral obligations owed to the assured, are insufficient to sustain an insurable interest. If, however, the death of the life insured will involve the assured in a liability, it is no answer for the insurers to show that he will also derive some compensating benefit, since the contract is not one of indemnity and the insurers may not set off the assured’s gain against his loss.’

67. Section 5 of the Marine Insurance Act 1906 which codified the common law so far as Marine Insurance was concerned defined an insurable interest in the following way:

‘1. Subject to the provisions of this Act every person has an insurable interest who is interested in a marine adventure.

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2. In particular a person is interested in a marine adventure where he stands in a legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof.’

68. The notes in the 10th edition of Chalmers’ Marine Insurance Act 1906 under section 5 include a reference to the famous dictum of Lawrence J when providing advice to the House of Lords in Lucena v Craufurd (1806) 2 Bos & Pul (NR) 269 at 302 where he said:

‘Interest does not necessarily imply a right to the whole or part of the thing, nor necessarily or exclusively that which may be the subject of privation; but the having some relation to or concern in the subject of insurance, which relation or concern, by the happening of the perils insured against, may be so affected as to produce a damage, detriment, or prejudice to the person insuring … to be interested in the preservation of a thing, is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction.’

69. Lucena v Craufurd was concerned with insurance on certain ships and the advice of Lawrence J was to the effect that there was no insurable interest in the ships in that case. In the decision of the House of Lords in the speech of Lord Eldon he also dealt with insurable interest in these terms:

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

70. There has been some debate as to whether Lord Eldon’s test is narrower than Lawrence J’s, and as to whether Lawrence J’s test, being contained only in an advice, should be rejected in favour of Lord Eldon’s which was contained in a speech pronouncing the decision. Since Lucena v Craufurd was concerned with the insurance of property it is unnecessary to resolve that debate, but I do note that Lawrence J’s test has been approved many times in later decisions (see for example Blackburn J in

Wilson v Jones (1867) LR 2 Ex 139 in a passage quoted later in this judgment at

paragraph 88 and, more recently, Kerr LJ in Mark Rowlands v Berni Inns [1986] 1 QB 211 at 228).

71. The above demonstrate, I would suggest, that it is difficult to define insurable interest in words which will apply in all situations. The context and the terms of a policy with which the court is concerned will be all important. The words used to define insurable interest in for example a property context, should not be slavishly

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

Date for insurable interest and valuation

72. One other general point to make at this stage relates to the date at which an insurable interest must exist, and (where relevant) the date at which it must be valued. In an indemnity policy the relevant date is the date of loss. If the policy is not a valued policy, liability will also be assessed at the date of loss. Where the policy is a valued policy, that value will have been assessed at the date of the policy, and in the absence of fraud the value fixed by the policy will as between the insurer and the assured be conclusive of the insurable value of the subject intended to be insured whether the loss be total or partial (see section 27(3) of the Marine Insurance Act 1906).

73. In a life policy the date at which the insurable interest must exist is the date of the taking out of the policy. Furthermore, that is the date for valuing the insurable interest (see Dalby). In Godsall v Boldero a policy for the sum of £500 had been taken out on the life of the late Mr Pitt by the plaintiffs who were creditors of Mr Pitt. Lord Ellenborough CJ in the judgment of the court said:

‘The event against which the indemnity was sought by this assurance, was substantially the expected consequence of his death as affecting the interests of these individuals assured in the loss of their debt.’

In the result as the personal representatives of Mr Pitt had paid off the debt the court held that the sum of £500 was not recoverable under the policy.

74. Godsall v Boldero was overruled by Dalby. In Dalby the Anchor Life-Assurance Company had insured the life of the Duke of Cambridge in four separate policies – two for £1,000 and two for £500 each granted by that company to the Rev John Wright. Anchor wished to limit their liability on the Duke’s life and took out a policy with the defendants for £1,000 by way of ‘counter insurance.’ Under an arrangement between Anchor and Wright, Anchor’s liability under the policies they had issued on the Duke’s life was subsequently extinguished or severely limited. The court held that a life assurance was a contract to pay a certain sum of money and not an indemnity; that the date at which an insurable interest should exist was the date when the policy was taken out so far as section 1 was concerned; that the date of valuation of that interest was the date when the policy was taken out; and, in the circumstances, even if liability under the original policies had been extinguished, Anchor were entitled to recover £1,000 on the ‘counter insurance’.

75. It is convenient in this context to refer to Hebdon v West (1863) 3 B & S 579 which the judge in his judgment thought possibly inconsistent with Dalby. In that case

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a bank clerk had insured his employer’s life with two insurance companies. The first policy was for £5,000 and the second for £2,500. The bank clerk had borrowed £4,700 which the employer had subsequently said would not be called in during his lifetime. In 1856 the bank clerk took out a policy on his employer’s life with an insurance company for £5,000. In 1857 the debt having increased to £6,000, the employee effected a further policy of insurance for £2,500 with another insurance company. The employer died in 1861. The bank clerk recovered £5,000 under the first policy and paid that sum to the bank. The court decided that the bank clerk did not have an insurable interest by reference to the unenforceable promise not to call in the sum during the employer’s lifetime. The court decided that the bank clerk’s insurable interest in the life of his employer was simply by reference to the engagement to employ the bank clerk for seven years at a salary of £600 a year to the extent that such period remained at the time when the policy was effected. The court assessed the value of the insurable interest at £3,000 i.e. five years times £600 as at the date of the taking out of the first policy. The court held that the bank clerk could:

‘only recover or receive upon the whole the amount of his insurable interest, and if he has received the whole amount from one insurer he is precluded by the terms of the third section of the statute from recovering or receiving any more from the others.’

76. Langley J thought that Hebdon was inconsistent with the reasoning in Dalby. In

MacGillivray on Insurance Law it is suggested that the judge’s criticism of Hebdon

may be unjustified in that it says:

‘The assured in Hebdon failed to recover on the second policy not because he no longer possessed an interest worth £2,500 when the life dropped, but because he had already recovered more than his interest was worth when he took out the second policy. The question of multiple insurances did not arise in Dalby.’ 77. I think that by that sentence the authors mean that he had already ‘covered’ more than his interest when he took out the second policy. It may be on this basis that the judge’s criticism of the decision is not justified. Dalby and Hebdon are consistent on the following basis. The value of an interest at the time of taking out the policy is assessed on the maximum pecuniary loss that the assured could suffer on the death of the life assured. In Dalby that was £3,000; in Hebdon that was £3,000. Nothing in excess of those values could be recovered. In Dalby that led to recovery of £1,000, and in Hebdon that led to a result that since more than £3,000 had been covered by the first policy, there was no interest in taking out a second policy.

78. But, in the above decisions, one can see already a tension between (1) an insurance being intended to be an indemnity against loss; (2) an anxiety that insurance should not be used as a means of gambling or wagering on an event in which an insured may have no interest; and (3) an anxiety to see that insurers who receive

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