INSURABLE INTEREST.
Insurable interest can better be understood by describing
what it is not. The physical object, property, right, person, liability or an
event that may result in loss of legal right or creation of a legal; liability
is not insurable interest. The building insured in fire insurance, the motor
vehicle insured in Motor Vehicle Insurance, the life assured in life assurance,
the liability insured in liability insurance, the Marin Cargo assured in Marine
Insurance and so on, do not refer to the insurable interest. These physical
materials, property, right, persons, financial right and others. Describe what
is called the subject-matter of insurance.
Insurable interest is not the subject-matter of insurance.
It refers to the financial interest of the prospective insured in the
subject-matter of insurance. This financial interest is called the
subject-matter of the insurance contract simply subject-matter of the contract.
Insurable interest, therefore, is the legal right to insure
without which no insurance contract can be entered. It constitutes the legal
right to insure arising out of financial relationship, and recognized at law
between the insured and the subject-matter of insurance. This legal right must;
nonetheless, be capable of financial valuation, and enforceable at law.
ESSENTIALS OF INSURABLE INTEREST.
There are four conditions or states which must be fulfilled
before insurable interest is said to exist. These essentials of insurable
interest are.
1.
There must be some property, life or limb,
potential liability or pecuniary interest capable of being insured.
2. Such property, life or limb. Potential liability
and so on, must be the subject-matter of insurance.
3. The insured must, stand in a relationship with
the subject-matter of insurance whereby he benefits from its safety, wellbeing
or freedom from liability and would be prejudiced by its damage or destruction
or the existence of liability.
4.
The relationship between the insured and the;
subject-matter of insurance must be financial and legally recognized.
CREATION OF INSURABLE INTEREST.
Insurable interest can be created in three ways: by
contract, under statute and at common law.
Insurable interest can be created by contract. There are
contracts which a person can enter making him liable for something for which he
would not be liable in absence of the contractual condition. An example is a
tenancy agreement in which the tenants are responsible for maintenance or
repair of the building. By such contracts, insurable interest can be created.
Insurable interest can also be created by statutes. There are
some statutes or act of Parliament which place responsibilities on people
similar to the contracts’ Consider the following examples:
1.
The married women’s property act 1882: thus act
provides married women with insurable interest in their own lives or in
insurance policies on their husbands’ lives for their (wives) own benefits.
Before the act married women had no insurable interest as they were not allowed
to own property, and were seen as their husbands’ mere chattels.
2. The legal position in insurance law that the
right to insure does not arise automatically from mere family relationship or blood
relationship was modified in section 50 (1) of insurance Decree No. 58 of 1991
(re-enacted in insurance Decree No. 2 of 1997). The decree provides that a son
or a person in some family relationship, in some circumstances, can insure life
of parents or the other vice versa. The section of the decree read:
A person shall be deemed to have an
insurable interest in the life of any other person or in any other event where
he stands in any legal relationship to that person or other event in
consequence of which he may benefit by the safety of that person or event or be
prejudiced by the death of that person or the loss from the occurrence of the
event.
Another way insurable interest can be
created is under common law. Example of such situation include ownership of
property, potential ;liability for negligence and certain strict liability
(usually unlimited in amount) upon certain persons in charge of property
belonging to others as in the case of bailees, hoteliers, and common carriers.
WHEN INSURABLE INTEREST MUST EXIST.
Insurable interest must exist in the
various classes of insurance as follow;
·
Accident insurances and other insurance subject
to indemnity other than marine cargo insurance: in these insurances, insurable
interest must exist both at the time the contract is entered and at the time of
loss.
·
Life Assurance: In life assurances, insurable
interest is required at inception of the contract, that is the time of the
completion of the contract. Since the case of Dalby V. the India London Life
Assurance Co. (1984), insurable interest needs only to be valued at inception.
Thus, there is no requirement for insurable interest at the time of the claim.
·
Marine Cargo Insurance: the custom of Maritime
trading allows cargo to change ownership while in transit. Therefore, insurable
interest can change severally while the marine cargo is in transit; hence
insurable interest is required at the time of loss. Section 8 (1) of Marine
Insurance Act (1961) amended in 1990 stressed this position as follows:
The assured must be interested in the subject-matter insured at the time
of the loss though he needs not be interested when the insurance is affected.