INTRODUCTION TO INSURABLE INTEREST
• Insurable interest means an interest which can be or is protected by a
contract of insurance.
• This interest is considered as a form of property in the contemplation of
• It is a nexus between person and property
• The person must have suffered loss by the insured peril
• Normally, the insurable interest is established by direct relationship(blood),
by ownership or possession(contractual).
• Section 7 of Marine Insurance Act, 1963. It is the relation between the
person and the property insured. A policy can not be issued without
DEFINITION OF INSURABLE INTEREST
• According to Patterson: Insurable interest is a relation between the
insured and the event insured against, such that the occurrence of
the event will cause substantial loss or injury of some kind to the
• Rodda says that Insurable interest may be defined as an interest of
such a nature that the occurrence of the event will cause substantial
loss or injury of some kind to the insured.
• It is an interest or right which the law will recognize in the
preservation of the thing or the continuance of the life which has
NATURE OF INSURABLE INTEREST
• Insurable Interest may be defined as an interest of such
a nature that the occurrence of the event insured against would
cause financial loss to the insured.”
• In Lucena v Craufurd (1806)
• It has been pointed out that the interest must be enforceable at
law. Mere hope, however strong it may be, is not sufficient.
• Lord Eldon observed that expectation though founded on
highest probabilities is not interest.
ESSENTIALS OF INSURABLE INTEREST
• Essentials of Insurable Interest:
• There must be property, rights, interest, life, limb or potential
liability devolving upon the insured capable of being covered by
a policy of insurance.
• Such property, right, life, limb, interest or liability must be the
subject matter of insurance.
• Therefore, insurable interest is often related to ownership,
relationship by law or blood and possession.
• The interest must be lawful, that is, it should not be illegal,
unlawful, immoral or opposed to public policy.
IMPORTANCE OF INSURABLE INTEREST
• The importance of insurable interest:
• Insurable interest is an essential requirement for issuing
an insurance policy that makes the entity or event legal, valid
and protected against intentionally harmful acts.
• People not subject to financial loss do not have an insurable
interest. It prevents gambling.
• The involvement of an asset at the risk of financial loss as the
insurable interest prevents gambling. Therefore, without
insurable interest, the contract would simply be gambling.
TIME OR DURATION OF INTEREST
• The time when the insurable interest must be present various with the
nature of the insurance contracts.
• The question is whether insurable interest should exist at the time when
the contract is formed or should it also continue to exist until it is
• In case of Life Insurance the Insurable interest must present at the time of
formation of the contract.
• In case of Fire Insurance both at the time of formation of the contract and
at the time of the loss
• In case of Marine Insurance at the time of loss.
• In Dalby case it was held that the insurable interest be proved to have
existed at the time of taking the policy and at that date only.
INSURABLE INTEREST AND LIFE INSURANCE
• In life insurance policies the following have been recognized as having
• Relationship by Marriage or adoption.
• One’s own life, By Husband or Wife, Parent and Child.
• By Contractual Relationship: Creditor and Debtor, Partner and Co-partner,
Principal and Agent, Master and Servant(Ship)etc.,
• In Reed v. Royal Exchange Assurance Co, (1795) Peake 70. Held that the
husband is presumed to have an insurable interest in the life of his wife.
• Godsall v. Baldero, (1807)9East 72. Held a creditor has an insurable interest
in the life of the debtor.
INSURABLE INTEREST AND FIRE INSURANCE
• A Fire Insurance contract is considered as a personal contract.
• It is only an agreement with a particular person to pay a certain sum of
money if he suffers any loss or damage due to fire with reference to the
• A person is presumed to have an insurable interest in the property if he has
a pecuniary interest in the continued existence of the property.
• Examples: Interest of Bailee, Interest of Agent, Purchaser and Seller,
Mortgagor and Mortgagee, Lessor and Lessee and A Lien Holder.
• In Vijaya Kumar v. New Zealand Insurance Co, AIR 1954 Bom 347. Held that
bailee can insure the goods against fire.
INSURABLE INTEREST AND MARINE
• In Marine Insurance the Insurable interest must present at the time of loss but
not at the time of formation of contract.
• Under a marine policy, we have already noted that the assured must be
interested in the subject matter at the time of loss and it need not subsist at the
time when the insurance is effected.
• A person may be having the following types of interests:
• A defeasible interest, a contingent interest, a partial interest, the risk undertaken
by insurance, the creditor of money on bottomry
• The master or any member of the crew of a ship in respect of their wages; the
person advancing money in respect of a freight which cannot be recovered.
• In Suraj Mal Ram Niwas (P) Ltd v. United India Insurance Co. Ltd.,(2010) 10 SCC
567. Held that a stranger cannot alter the legal obligations of the parties to the
contract and hence the insurer was not liable for the loss.