This book assesses the role of the doctrine of insurable interest within modern insurance law by examining its rationales and suggesting how shortcomings could be fixed.
Over the centuries, English law on insurable interest – a combination of statutes and case law – has become complex and unclear. Other jurisdictions have relaxed, or even abolished, the requirement for an insurable interest. Yet, the UK insurance industry has overwhelmingly supported the retention of the doctrine of insurable interest. This book explores whether the traditional justifications for the doctrine – the policy against wagering, the prevention of moral hazard and the doctrine’s relationship with the indemnity principle – still stand up to scrutiny and argues that, far from being obsolete, they have acquired new significance in the global financial markets and following the liberalisation of gambling. It is also argued that the doctrine of insurable interest is an integral part of a system of insurance contract law rules and market practice. Rather than rejecting the doctrine, the book recommends a recalibration of insurable interest to afford better pre-contractual transparency to a proposer as to the suitability of the policy to his or her interest in the subject-matter to be insured.
Providing a powerful defence for the retention of insurable interest, this book will appeal to both academics and practitioners working in the field of insurance law.
TABLE OF CONTENTS
- Introduction
Formative period
Insurable interest under the lex mercatoria and common law
Wager and wager policies
Early legislation
The Marine Insurance Act 1746
The Life Assurance Act 1774
Consolidation
The Gaming Act 1845
The Marine Insurance Act 1906
The Gambling Act 2005
Legal bases
Marine property
Non-marine goods
Buildings and land
Profit and future income
Life
Liability
Debtor’s property and debtor’s life
Debt
Reinsurance
Timing and consequences of lack of insurable interest
Marine insurance
Life insurance
Non-marine goods, buildings and land, and liability insurance
Defence of lack of insurable interest
The courts’ strategies to "lean in favour of an insurable interest"
The defence of lack of insurable interest and good faith
Waiver and assignment
Marine insurance
Life insurance
Non-marine property insurance
Property insurance
The classic definition of insurable interest
Expanding the meaning of insurable interest
Expanding insurable interest to pervasive interests
Pervasive interest –v- legal interest test –v- moral certainty test
Has the notion of pervasive interest become obsolete?
Life insurance
Pecuniary interests
Presumed interests
Statutory extensions
A new approach to insurable interest: Feasey
The principles
Construction
Ward LJ’s dissenting judgment
Reception and analysis
The LC’s proposals
The case for reform of the doctrine
The IIB
Would the IIB address the issues identified?
Academic debate
Examining the Traditional Justification
Abolition
Retention and expansion
Remedies
Foreign law approaches
Australia
US / New York
Canada
Germany
South Africa
People’s Republic of China
Themes for reform
Wagers and insurance distinguished
Doctrinal distinction
Economic analysis
Public policy and the differentiation between insurance and wagers
Policy on gambling
Policy on insurance
Reasons against gambling by insurers
Dividing line for tax treatment
Dividing line for takaful insurance
Policy against wagering under the guise of insurance
Sham transactions
Misrepresentation
Unintentional wager policies
Contracts of insurance differentiated from CDS
What are CDS?
CDS and insurance contracts distinguished
Restraining effect of insurable interest requirement
The anti-wagering justification and the definition of insurable interest
Historical background and economic analysis
Criticisms
Doubtful deterrent effect
Reverse moral hazard
Inappropriateness of contract law
‘Skin in the game’ in property insurance
How does an insurable interest constitute skin in the game?
Relationship with other anti-moral hazard techniques
Relationship between insurable interest and moral hazard restated
Moral hazard in the capital markets
Moral hazard and STOLI
Moral hazard and the definition of insurable interest
The indemnity principle
Criticisms
The relationship between the doctrine of insurable interest and the indemnity principle
The indemnity justification and the definition of insurable interest
Indemnity dependent on nature and extent interest
Multiple claims
Valuation
Utmost good faith and pre-contractual risk presentation
Utmost good faith
Pre-contractual risk presentation under the IA 2015
Pre-contractual representations under CIDRA
Causation
No interest
Economic interests
Consequential loss
Duty to mitigate loss
Duty to prevent, avert and mitigate loss
Reasonableness and insurable interest
Failure to mitigate as an intervening cause
Abandonment
Subrogation
Relationship with the doctrine of insurable interest
Rights of action against third parties
Significance of abandonment and subrogation
Methodology for survey
Insurable interest and title requirements
Clauses requiring loss and exclusion of consequential loss
Retention, deductibles and limits of liability
Loss prevention and loss mitigation
Risk Control Terms
Notice of loss
Claims conditions
Basis of settlement (reinstatement and repairs)
Subrogation provisions
Insurable interest as part of contractual fabric
Historical background to definition of ‘contract of insurance’
Doctrinal analysis of definition of ‘contract of insurance’
Interest –v- insurable interest in property insurance
Definition for regulatory and tax purposes
Conceptual analyses
Abraham’s four conceptions of insurance
Merkin and Steele’s models of insurance
Insurable interest and market perception
Definitional role
Economic interest
Reconciliation between definitional and validity roles
Route A: contracts with ‘interest’ but without ‘insurable interest’
Route B: non-insurance contracts under the guise of insurance
Consequences of falling outside definition
Consequences for policyholder
Consequences for insurer
Evaluation of remedies regime
Fairness
Effectiveness and enforcement
Interference with the parties’ contract
Remedial gap between legal consequences and regulatory sanctions
Authorization and permissions
Prudential regulation
Conduct of business regulation
FOS
Insurers’ duties in relation to insurable interest
Suggested wordings
The duty to decline
A regulatory product information requirement
Legal bases for the duty to decline and the regulatory product information requirement
Benefits and detriments
Biography
Dr Franziska Arnold-Dwyer, Lecturer in Insurance Law and Deputy Director of the Insurance, Shipping & Aviation Law Institute at the Centre for Commercial Law Studies, Queen Mary University of London.
