Insurable Interest

Question 1

What is the definition of Insurable Interest?

Answer 1

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

Question 2

What are the key elements of II? (4)

Answer 2

A subject matter
The PH must have an Economic or financial interest in it
Must be a current interest
Must be a legal interest

Question 3

What is the subject matter of the insurance contract?

Answer 3

The property is the subject matter of the insurance but

The PH interest in the property is the subject matter of the contract

Question 4

Can an expectancy of interest be insured?

Answer 4

No

e.g. an heir to property

Question 5

Why does the law require II?

Answer 5

To reduce moral hazard

To discourage wagering

Question 6

How is II created?

Answer 6

By Common Law

By contract

Question 7

How does Common Law create II?

Answer 7

Ownership

Right to unlimited interest in own life

Question 8

How does II by contract arise?

Answer 8

A person can agree to be responsible for something they would not normally be

e.g. landlord is normally liable for property but the lease could have a clause to say tenant is liable for maintenance and upkeep of the property. This creates a financial interest in the property for the tenant

Question 9

What statute governs Marine Insurance?

Answer 9

The Marine Insurance Act 1906

Question 10

When is II required on a Marine policy?

Answer 10

At time of loss only

No requirement at the start of contract

Question 11

On a Marine Policy what happens if II has ceased since the time of the loss?

Answer 11

Nothing, still able to claim

Question 12

What are the 4 major points in the Life Assurance Act 1774 with regards to II?

Answer 12

The person benefiting from the insurance must have II in the life or the event insured.

The name of the person to benefit must appear in the policy

The insured can recover no more than the amount of the value of their interest

The Act does not apply to insurances on ships, goods or merchandises

Question 13

In Life Insurance, when is II required?

Answer 13

At inception only

Question 14

Can insurers waive the requirement of II?

Answer 14

For Marine and Life insurance - no

Insurers can issue policies where there is doubt about the existance of II. These policies cannot be enforced in court e.g. PPI policies

Question 15

What are the two relationship categories for II in Life insurance?

Answer 15

Family relationships - a natural tie of love and affection

Business relationships - a financial interest in the life of another arises from a non consumer contract or other non consumer dealings e.g. Business Partners

Question 16

How much II do husbands and wives have in each other?

Answer 16

Unlimited

Question 17

What are the main points of the Married Womens Property Act 1882?

Answer 17

A woman can insure the life of her husband for her own benefit, or her childrens
A policy taken out by one for the benefit of the other or their children creates a statutory trust
This means they will get the money free of any debts of the insured

Question 18

Which business relationships give rise to II? (3)

Answer 18

Partners
Employer & employee
Creditor & debtor

Question 19

How much II does one business partner have in another?

Answer 19

Up to the amount of any loss or expense if one died

Question 20

How much can an employee insure their employer for?

Answer 20

Their salary for their notice period

Applies to personal contracts of employment only as ‘companies’ cannot die

Question 21

What are ‘keyman’ or ‘keywoman’ policies?

Answer 21

Policies for large amounts taken out on senior employees. They reflect the cost of training a new employee

Question 22

Does a debtor have II on their creditor?

Answer 22

No - only works other way round for the amount loaned + interest

Question 23

Who could have II in property? (8)

Answer 23

Owners
Part or joint owners
Mortgagee & mortgagors
Executors & trustees
Landlord & tenant
Bailees
People living together 
Finders & people in posession

Question 24

What II do Bailees have in property?

Answer 24

A bailee has legal posession of property e.g vehicle repairs, watch repairs, laundrette
They are repsonsible while its in their posession

Question 25

How does insurance for profits work?

Answer 25

This is covered by BI insurance
Covers ‘profit’ lost following damage to the insureds property such as factory, machinery or other goods
Founded on legal right (the right of ownership of the property) so not ‘expectancy’

Question 26

What happened in FCA V. Arch Insurance (2020) (2021)?

Answer 26

A test case admitted to the Financial Markets Test Case Scheme (1st one)

Not a legal action, the FCA represented a large number og PHs.

The High Court decided in favour of the insured in the majority of the wordings tested

An appeal ‘leap frogged’ the Court of Appeal to the Supreme Court where the decision was upheld and extended

Question 27

What is the subject matter of a Liability policy?

Answer 27

The insured’s wealth or assets which will be reduced if they have to pay damages

The liability itself is merely the cause of the loss

Question 28

Why do insurers get Reinsurance?

Answer 28

When they gove cover the agree to pay PH’s claims. It is their liability to pay claims. They have an II in this liability

So they can insure themselves against the risk of having to pay claims or claims that exceed a certain level

Question 29

What is the subject matter of reinsurance? And the reinsurance contract?

Answer 29

Usually the same as the underlying insurance contract

The subject matter of the contract is the original insurers liability to indemnify their PHs