End of Chapter - Insurance contract formation and insurable interest

Question 1

Formation of an insurance contract

Answer 1

Like other contracts, comes into existence when the offer made by one party is unconditionally accepted by the other
Consideration given by the insured is the premium and the consideration given by the insurer is the promise to pay the claims

Question 2

What does insurable interest mean?

Answer 2

The policyholder having a legal right to insure, arising out of a financial relationship recognised at law between the insured and the subject matter of insurance

Question 3

What are the key elements of insurable interest?

Answer 3

1. a subject matter of insurance
2. the policyholder must have an economic or financial interest in the subject matter
3. the interest must be current, not a mere expectancy
4. the interest must be legal

Question 4

Purpose?

Answer 4

To reduce moral hazard and discourage wagering

Question 5

When may insurable interest arise?

Answer 5

Common law or through a contract

Question 6

Marine insurance

Answer 6

Required by the Marine Insurance Act 1906, s. 4
s. 6 provides the insured must be interested in the subject matter at the time of the loss
No requirement of insurable interest when the contract is made

Question 7

Life insurance

Answer 7

Required by the Life Assurance Act 1774, s. 1
Insurable interest is required at the time the contract is made, i.e., at inception - no requirement to prove an interest when a claim arises

Question 8

Insurance policies on goods

Answer 8

No statutory requirement for insurable interest
Due to the Gambling Act 2005, a policy on goods without insurable interest is enforceable in theory
In practise, the principle of indemnity would prevent recovery by a person who has not suffered a loss
Quadra Commodities v. XL Insurance Co. discusses insurable interest in goods

Question 9

Other insurances

Answer 9

Other policies (land or building or liability insurances) may be covered by the Life Assurance Act 1774, s. 1
For land and buildings, insurable interest may also be required under common law
The position isn’t very clear so the best way to deal with it is through the principle of indemnity (which requires proof of loss before making a claim)