The following Insurance & Reinsurance practice note produced in partnership with Dr Franziska Arnold-Dwyer of Centre for Commercial Law Studies at Queen Mary University of London provides comprehensive and up to date legal information covering:
This Practice Note considers insurable interest, including insurable interest in construction and liability insurance. It also considers insurable interest in subrogation, co-insurance and double insurance and the Insurable Interest Bill.
‘Insurable interest’ refers to a doctrine of insurance contract law that requires the insured to have a relationship with the insured subject-matter that is recognised by law. Broadly speaking, only persons who have some relation to the subject-matter of the insurance contract, by reason of which they would be prejudiced by its loss, or may incur liability in respect thereof, can insure that subject-matter. Conversely, a person who has no such relationship cannot take out insurance on that subject-matter. The burden rests on the insured to prove an insurable interest exists.
The historic rationales for requiring an insurable interest are that:
it is characteristic of an insurable interest that distinguishes an insurance contract from wagering contracts (the ‘anti-wagering rationale’)
an insurable interest is thought to reduce the moral hazard posed by the insured taking deliberate steps to destroy the insured subject-matter to benefit from a claims payment (the ‘moral hazard rationale’) and
the doctrine of insurable interest supports the indemnity principle which rests upon the policy that claims payments should be limited to an indemnity for the insured’s loss
The anti-wagering rationale remains of great significance in the context of differentiating between insurance
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