Advanced

Insurable interest in marine insurance. - A necessity or an obsolete way of thinking?

Östring Lilja, Sara LU (2010) JURM01 20101
Department of Law
Abstract (Swedish)
The requirement of insurable interest in marine insurances has since long been debated in England, not only in relation to marine insurances. The focal point of this essay does however lie on the requirement of insurable interest in the marine insurance industry in England. Marine insurance as a term includes several types of insurances, a feature these sub-branches of marine insurance have in common, is that they can be classified as so called indemnity insurances.

During the 18th century, England was facing an increasing problem with gaming and wagering in the guise of insurance policies. As a result the concept of insurable interest was introduced. The insurable interest is meant to express the correlation between the assured and... (More)
The requirement of insurable interest in marine insurances has since long been debated in England, not only in relation to marine insurances. The focal point of this essay does however lie on the requirement of insurable interest in the marine insurance industry in England. Marine insurance as a term includes several types of insurances, a feature these sub-branches of marine insurance have in common, is that they can be classified as so called indemnity insurances.

During the 18th century, England was facing an increasing problem with gaming and wagering in the guise of insurance policies. As a result the concept of insurable interest was introduced. The insurable interest is meant to express the correlation between the assured and the subject-matter insured, the connection must be strong enough to insure that the assured is exposed to a real risk of loss. The requirement of insurable interest is not solely an English phenomenon and can be found in other legal systems around the globe. There are nevertheless differences in how the insurable interest is defined in different legal systems, England has however during several years used the legalistic approach. The legalistic approach stems from the reasoning in the famous case Lucena v Craufurd, this is clearly reflected in MIA of 1906, section 5.

MIA of 1906 is essential in the marine insurance law in England, the importance of insurable interest is visible in the many sections dedicated to this question. It is foremost section 4 and section 5 that has been the objects of discussion. Section 5 has foremost been critiqued for its narrowness and its strong connection to the legalistic approach which by many is considered as stiff and unfair. Regarding section 4, the discussion is revolving around the question whether it´s still applicable or not. The reason for that discussion is the Marine Insurance (Gambling Policies) Act of 2005, after it entered into force in 2007 many wonder if the requirement of insurable interest still remains or if it had been abolished by mistake? The answer to that question varies and the uncertainty seems to linger, considering circumstances presented in the essay it does however seem as the requirement still stands. The future of the insurable interest is nonetheless unclear since the MIA soon will be subject of an alteration. What this alteration will mean for the requirement of insurable interest is not yet clear, but it seems as if the requirement will be abolished in relation to indemnity insurances. To complicate the question a bit more, it is nonetheless unclear whether or not this possible abolishment also will include marine insurances.

There seems to be a concern that an abolishment of the over 300 year old requirement would result in an increased tendency of gaming and wagering in the guise of insurance policies. The probability of this assumption can, and ought to, be questioned since other principles and regulations most likely would prevent an effect like this.
A reasonable question to ask oneself before taking any stand as regards the future of insurable interest is; which problems are related to the requirement today?

It can be discussed whether it is the actual requirement, the formulation of the requirement, or the application of the requirement that has contributed to the opinion that a reform is necessary. There are several relevant aspects connected to this question. It does however seem as if there is a portion of ambivalence connected with the question of how the insurable interest ought to be defined. The legalistic approach has, as previously mentioned, been used during several years, but the results produced by this method have not always been successful. The famous case Macaura v Northern Assurance Co Ltd is considered to be a high-water mark of the legalistic approach. Critique has foremost been given against the stiffness by which the method defines insurable interest, a stiffness that at times has lead to unreasonable results. MIA section 5 defines the insurable interest in a way that has contributed in making the legalistic method into the most used method, many experts are therefore of the opinion that section 5 is a failure since it is not exhaustive and thereby also misguiding. Despite the fact that the legislation has not changed, a more flexible way of defining the insurable interest has snuck in into the case-law. A combination of consideration to pecuniary interests and commercial pragmatism has lead to an ambivalence in what is to be defined in an insurable interest. The tendency among the courts seems to be to move further away from the strict legal definition stemming from the legalistic method. A contributing reason for this might be the structure of the insurance market, and a relevant question to ask would be; if it would not be more reasonable to let the representatives of the market, the insurers and the assureds, decide what is to be covered by the agreed insurance policy?

This essay was incited with the ambition to seek an answer to the question of what place the requirement of insurable interest has in the modern marine insurance law. The question is complex in the sense that there are many factors that must be considered before an answer can be presented. The essay begins with presenting more general information, such as the history and features of the marine insurance, and then continues with presenting the more specific areas connected to the question of insurable interest. The conclusions made, based on the facts presented throughout the paper, can then be read in the final chapter. (Less)
Please use this url to cite or link to this publication:
author
Östring Lilja, Sara LU
supervisor
organization
course
JURM01 20101
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Maritime Law
language
English
id
1698470
date added to LUP
2010-10-22 12:12:06
date last changed
2010-10-22 12:12:06
@misc{1698470,
  abstract     = {The requirement of insurable interest in marine insurances has since long been debated in England, not only in relation to marine insurances.  The focal point of this essay does however lie on the requirement of insurable interest in the marine insurance industry in England. Marine insurance as a term includes several types of insurances, a feature these sub-branches of marine insurance have in common, is that they can be classified as so called indemnity insurances. 

During the 18th century, England was facing an increasing problem with gaming and wagering in the guise of insurance policies. As a result the concept of insurable interest was introduced. The insurable interest is meant to express the correlation between the assured and the subject-matter insured, the connection must be strong enough to insure that the assured is exposed to a real risk of loss. The requirement of insurable interest is not solely an English phenomenon and can be found in other legal systems around the globe. There are nevertheless differences in how the insurable interest is defined in different legal systems, England has however during several years used the legalistic approach. The legalistic approach stems from the reasoning in the famous case Lucena v Craufurd, this is clearly reflected in MIA of 1906, section 5.

MIA of 1906 is essential in the marine insurance law in England, the importance of insurable interest is visible in the many sections dedicated to this question. It is foremost section 4 and section 5 that has been the objects of discussion. Section 5 has foremost been critiqued for its narrowness and its strong connection to the legalistic approach which by many is considered as stiff and unfair. Regarding section 4, the discussion is revolving around the question whether it´s still applicable or not. The reason for that discussion is the Marine Insurance (Gambling Policies) Act of 2005, after it entered into force in 2007 many wonder if the requirement of insurable interest still remains or if it had been abolished by mistake? The answer to that question varies and the uncertainty seems to linger, considering circumstances presented in the essay it does however seem as the requirement still stands. The future of the insurable interest is nonetheless unclear since the MIA soon will be subject of an alteration. What this alteration will mean for the requirement of insurable interest is not yet clear, but it seems as if the requirement will be abolished in relation to indemnity insurances. To complicate the question a bit more, it is nonetheless unclear whether or not this possible abolishment also will include marine insurances. 

There seems to be a concern that an abolishment of the over 300 year old requirement would result in an increased tendency of gaming and wagering in the guise of insurance policies. The probability of this assumption can, and ought to, be questioned since other principles and regulations most likely would prevent an effect like this.
A reasonable question to ask oneself before taking any stand as regards the future of insurable interest is; which problems are related to the requirement today?

It can be discussed whether it is the actual requirement, the formulation of the requirement, or the application of the requirement that has contributed to the opinion that a reform is necessary. There are several relevant aspects connected to this question. It does however seem as if there is a portion of ambivalence connected with the question of how the insurable interest ought to be defined. The legalistic approach has, as previously mentioned, been used during several years, but the results produced by this method have not always been successful. The famous case Macaura v Northern Assurance Co Ltd is considered to be a high-water mark of the legalistic approach. Critique has foremost been given against the stiffness by which the method defines insurable interest, a stiffness that at times has lead to unreasonable results. MIA section 5 defines the insurable interest in a way that has contributed in making the legalistic method into the most used method, many experts are therefore of the opinion that section 5 is a failure since it is not exhaustive and thereby also misguiding. Despite the fact that the legislation has not changed, a more flexible way of defining the insurable interest has snuck in into the case-law. A combination of consideration to pecuniary interests and commercial pragmatism has lead to an ambivalence in what is to be defined in an insurable interest. The tendency among the courts seems to be to move further away from the strict legal definition stemming from the legalistic method. A contributing reason for this might be the structure of the insurance market, and a relevant question to ask would be; if it would not be more reasonable to let the representatives of the market, the insurers and the assureds, decide what is to be covered by the agreed insurance policy?

This essay was incited with the ambition to seek an answer to the question of what place the requirement of insurable interest has in the modern marine insurance law. The question is complex in the sense that there are many factors that must be considered before an answer can be presented. The essay begins with presenting more general information, such as the history and features of the marine insurance, and then continues with presenting the more specific areas connected to the question of insurable interest. The conclusions made, based on the facts presented throughout the paper, can then be read in the final chapter.},
  author       = {Östring Lilja, Sara},
  keyword      = {Maritime Law},
  language     = {eng},
  note         = {Student Paper},
  title        = {Insurable interest in marine insurance. - A necessity or an obsolete way of thinking?},
  year         = {2010},
}