DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE

Insurable Interest

SUBJECT

Insurance Law

NAME OF THE FACULTY

Mr. Bharat Kumar

NAME OF THE CANDIDATE:

VATTIKUTI DIVYA CHOWDARY

ROLL NO:

2017106

SEMESTER

8 TH SEMESTER
 ACKNOWLEDGEMENT

With due respect I thank my teacher Mr. Bharat Kumar Sir, who gave me this golden opportunity
to do this wonderful project on Insurable Interest, which also helped me in doing a lot of research
and I came to know about a lot of things.

The project is extremely interesting to work on as it will give us the opportunity to have a
detailed insight of learning about Insurance Law. I would like to take this opportunity to thank
you for helping immensely in almost every possible way to get our project proposal prepared.
Iam extremely thankful to you as you have prepared me for looking at the matters of life widely
with open minds. This project is one of the sources of giving us knowledge about Insurable
Interest.

Last but not the least, we express our overall gratitude to our institution, which actually provided
me the chance of having the academic requirement to prepare such a project.

Vattikuti Divya Chowdary,

2017106,

8 th semester
Table of Contents
ACKNOWLEDGEMENT.................................................................................................................................2
INTRODUCTION...........................................................................................................................................3
1. MACAURA V. NORTHERN INSURANCE CO LTD....................................................................................4
2. LUCENA V CRAUFURD .........................................................................................................................4
3. DAVID COWAN v. JEFFERY ASSOCIATES AND OTHERS.........................................................................6
4. M/S.SURAJ MAL RAM NIWAS OIL MILLS VS UNITED INDIA INSURANCE CO. LTD................................7
5. CONTSHIP CONTAINER LINES LTD VS D.K. LALL & ORS ...........................................................................8
6. The New India Assurance Co. Ltd. Vs Priya Blue Industries Pvt. Ltd........................................................9
7. National Commission Judgment passed in Oriental Issuance Co. Ltd. Vs. Kamal Tours and Travels......11
8. New India Assurance Co. Ltd. vs. G.N Sainani MANU/SC/0814/2010............................................12
9. United India Insurance Company v. Mrs. Parmeshwari Sawhney AIR 2010 Jammu and Kashmir 138...13
10. New India Assurance Co. Ltd. v. Maha Singh 2014 ACJ 881 , (2013)..............................................14
CONCLUSION.............................................................................................................................................15
REFERENCES..............................................................................................................................................16

INTRODUCTION
Insurable interest is the level of hardship a person will suffer from the loss of something or
someone they have insured. In the case of life insurance, it refers to the potential needs the
beneficiary will require from the financial loss of the insured person. Insurable interest
exists to prevent the moral hazard individuals have from taking out insurance policies for
the wrong reasons. General insurance is meant to ease the distress of a unexpected events,
and it’s not intended to be used as a means to bet on, or profit on insurance proceeds from
the unfortunate circumstances of others.

For the contract of insurance to be valid it is not only necessary that the parties to the
contract are competent to contract, it is made with free consent and the consideration is
lawful, beside all this it is also necessary that the insured has insurable interest on the
subject matter of the insurance. if there will be no insurable interest then contract will
amount to wager. Insurable interest in broad term means that the party to the insurance
contract who is insured or policyholder must have a particular relationship with subject
matter of the insurance, whether that be a life or property. The concept of insurable interest
is of particular importance in marine and life insurance. 1

CASE ANALYSIS

1. MACAURA V. NORTHERN INSURANCE CO LTD2

Citation: [1925] AC 619

Facts

Mr Macaura owned the Killymoon estate in County Tyrone, Northern Ireland. He sold the timber
there to Irish Canadian Sawmills Ltd for 42,000 fully paid up £1 shares, making him the whole
owner. Mr Macaura was also an unsecured creditor for £19,000. He got insurance policies - but
in his own name, not the company's with Northern Assurance covering for fire. Two weeks later,
there was a fire. Northern Assurance refused to pay up because the timber was owned by the
company, and that because the company was a separate legal entity, it did not need to pay Mr
Macaura any money.

1
M A Clarke, The Law of Insurance Contracts (5th ed 2006),
2
 [1925] AC 619
Issue: Wheather House of Lords concerning the principle of lifting the corporate veil. Unusually,
the request to do so was in this case made by the corporation's owner.

Reasoning

The owner of a timber estate sold all the timber to a company which was owned almost solely by
him. He was the company’s largest creditor. He insured the timber against fire, but in his own
name. After the timber was destroyed by fire the insurance company refused the claim. The
House of Lords held that in order to have an insurable interest in property a person must have a
legal or equitable interest in that property. The claim failed as “the corporator even if he holds all
the shares is not the corporation neither he nor any creditor of the company has any property
legal or equitable in the assets of the corporation.

Conclusion

The House of Lords held insurers were not liable on the contract, since the timber that perished
in the fire did not belong to Mr Macaura, who held the insurance policy. Lord Buckmaster gave
the first judgment, holding in favour of the insurance companies. Lord Atkinson concurred. Lord
Sumner concurred and said the following.

2. LUCENA V CRAUFURD 3
Citation: (1806) 2 B&P (NR) 269, HL
Facts

The assured were the Commissioners of Admiralty, whose duty was, under statute, to take care
of Dutch vessels and cargoes ‘which had been or might be thereafter detained in or brought into
the ports of the United Kingdom’. Before the commission was issued, certain Dutch vessels and
their cargoes had been seized by order of the British Government for the purpose of being
brought to England. After the commission was issued, the Commissioners insured these ships
and their cargoes. The ships were lost during their voyage to England. The Commissioners then
sought to recover under the policy. The insurer’s defence was that the Commissioners had no
insurable interest in the ships at the time of loss.

The House of Lords upheld the insurer’s defence on the basis that the Commissioners’ duty was
to take care of the ships only after their arrival. Since the ships had not yet arrived in England at
3
(1806) 2 B&P (NR) 269, HL
the time of loss, the Commissioners did not have an insurable interest. A panel of judges was
summoned to advise the House on the issues raised; notably, Lawrence J offered his perception,
sometimes referred to as ‘the moral certainty’ or the ‘factual expectancy’ test, of what constitutes
‘insurable interest’.

Issuse

wheather person is interested in a marine adventure where he stands in any legal or equitable
relation to the adventure or to any insurable property at risk

Reasoning

The most comprehensive of judicial pronouncements on the subject of insurable interest before
the Act were delivered by Lord Eldon and Lawrence J, in Lucena v Craufurd, below. It would
appear that the sentiments of Lord Eldon have been incorporated in the definition provided in s
5(2) of the Act, to the effect that the assured must stand in some relationship recognised by law
to the subject matter insured.

Conclusion

It is clear that the insured must have an interest, whatever we understand by that term. In order to
distinguish that intermediate thing between a strict right, or a right derived under a contract, and
a mere expectation or hope, which has been termed an insurable interest, it has been said in many
cases to be that which amount to a moral certainty.

3. DAVID COWAN v. JEFFERY ASSOCIATES AND OTHERS4

Citation: (1806) 2 Bos & PNR 269.
Facts

On 18 April 1996 the pursuer signed a proposal form for insurance against damage by certain
perils, including fire, to business premises at The Schoolhouse, Old Pentland, Loanhead,
Midlothian. The defenders acted as his brokers and participated in the completion of the proposal
form. Cover was put in place with effect from 12 April 1996. On 8 June 1996 fire occurred at the
premises causing serious structural damage with the result that the buildings were ultimately
demolished. The insurers subsequently repudiated liability under the policy. Their ground for
4
(1806) 2 Bos & PNR 269.
doing so was non-disclosure in the proposal form of certain matters held to be material. The
pursuer attributes that non-disclosure to certain failures by the defenders whom he sues in this
action for damages.

The insurers, although repudiating liability on the ground of non-disclosure, intimated that they
were, in any event, not satisfied that the pursuer had an insurable interest such as to entitle him to
recover under the policy. It is accepted by the pursuer that, in order to recover damages against
the defenders in the present action, he must establish that he had an insurable interest such that,
had there been appropriate disclosure, he would have been entitled to recover against the insurers
under the policy. A debate was held as to the relevancy of the pursuer's averments of insurable
interest.

Issuse

wheather the pursuer is a director and sole shareholder in the company, Premier Fruit &
Vegetables Limited

Reasoning:

In the present case the pursuer was at the time of the placing of the insurance and at the time of
the fire, prospectively a purchaser of the subjects but had neither acquired them nor entered into
an enforceable contract to acquire them. As a prospective proprietor of the subjects he had
entered into borrowing arrangements with the bank which anticipated the grant by him to it of
security over the subjects but, he never having become proprietor, no such security was in fact
granted.

Conclusion

The circumstance that the pursuer undertook to the bank a personal obligation to insure the
subjects does not advance matters; nor does the circumstance that he borrowed from the bank in
anticipation of being in a position to grant to it real security over the subjects. His characters as
creditor of Premier and as its sole shareholder do not, on present authority, instruct an insurable
interest (Macaura); nor does his character as guarantor of its debts; nor does any use of the
subjects unsupported by a right to use. In so far as those characters or relationships are
contractual in character, the relative contract does not relate to the property in a qualifying sense.
 4. M/S.SURAJ MAL RAM NIWAS OIL MILLS VS UNITED INDIA
INSURANCE CO. LTD.5
Facts

The appellant company is engaged in the business of manufacture and sale of "Bhisham" brand
mustard oil and cakes. They had obtained an open transit insurance policy from the respondents
covering "all types of edible oils in tins..." transported by rail/road (which had to be declared) from
Jaipur to anywhere in India. Initially, the liability of the respondents was limited to `10 lakhs but
during the relevant period, the limit was enhanced to 1 crore. The insurance policy was subject to
certain conditions attached as schedule to the policy. Additionally, the cover note also contained the
following special condition and warranty

Issuse

wheather the railway wagon carrying the said goods met with an accident on 28th September 1992,
resulting in extensive damage to the consignment.

Reasoning

Thus, it needs little emphasis that in construing the terms of a contract of insurance, the words used
therein must be given paramount importance, and it is not open for the Court to add, delete or
substitute any words. It is also well settled that since upon issuance of an insurance policy, the insurer
undertakes to indemnify the loss suffered by the insured on account of risks covered by the policy, its
terms have to be strictly construed to determine the extent of liability of the insurer. Therefore, the
endeavour of the court should always be to interpret the words in which the contract is expressed by
the parties.

Conclusion

Each and every consignment" must be declared before dispatch of goods is clear and admits of no
ambiguity. The appellant was obliged to declare "each and every consignment" before it left the
appellant's factory premises and there is nothing in the policy to suggest that the insured had the
liberty to pick and choose the dispatches which they wanted to declare to the insurer, not even at the
instance of the consignee, who otherwise is a stranger to the contract between the insurer and the
insured. We have no hesitation in rejecting the plea of the appellant that they were required to declare
5
1375 OF 2003
only those dispatches in which they had an insurable interest. It bears repetition that notwithstanding
any request by the consignee, the policy of insurance postulated declaration in respect of each and
every dispatch by the appellant. Therefore, the fact that purchasers did not want an insurance cover on
certain dispatches had no bearing on the obligation of the appellant to declare each and every dispatch
under the policy. It is a settled proposition of law that a stranger cannot alter the legal obligations of
parties to the contract. Resultantly, the appeal being devoid of any merit deserves to be dismissed. It is
dismissed accordingly, leaving the parties to bear their own costs.

5. CONTSHIP CONTAINER LINES LTD VS D.K. LALL & ORS 6

Facts

M/s D.K. Lall Enterprises, a sole proprietary concern, claims to have received an order for
export of iron furniture and iron handicraft items from M/s Natural Selection International, a
Spanish purchaser of those items. A similar order for export of miniature paintings is also said to
have been received by the said concern from M/s Pindikas another concern located in Spain. The
case of M/s D.K. Lall Enterprises is that all the items meant for export in terms of the above
orders were packed in 122 different cartons for shipment to the purchasers in Spain. According
to the exporter while miniature paintings were packed in one carton meant for export to M/s
Pindikas, the iron furniture items meant for export to M/s Natural Selection International were
packed in 121 other cartons. These packages were, according to the Exporter, checked and
cleared by the Customs Authority at Jodhpur and finally stuffed in one simple container, for
which purpose the exporter hired the services of M/s Samrat Shipping & Transport System Pvt.
Ltd. through its local agent who forwarded the container to Bombay where it was put on board
CMBT Himalaya, a vessel belonging to M/s Contship Container Lines Ltd.-appellant in C.A.
No.6232 of 2004. It is noteworthy that the exporter had obtained a Marine Cargo/Inland transit
insurance policy to cover risks enumerated in the policy.

Issuse: Whether Section 7 of the Act stipulates that subject to the provisions of the Act every
person interested in a marine adventure has an insurable interest

Reasoning:

6
16 March, 2010
Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to
or in connection with goods in an amount exceeding 666.67 Special Drawing Rights per package
or unit or two Special Drawing Rights per kilogram of gross weight of the goods lost or
damaged, whichever is higher, or the equivalent of that sum in other currency, unless the nature
and value of such goods have been declared by the shipper before shipment and inserted in the
bill of lading. Where a container, pallet or similar article of transport is used to consolidate
goods, the number of packages or units enumerated in the bill of lading and as packed in such
article of transport shall be deemed to be the number of packages or units for the purposes of this
paragraph as far as these packages or units are concerned.

Conclusion:

Neither the carrier nor the ship shall be entitled to the benefit of limitation of liability provided
for in this paragraph if it is proved that the damage resulted from an act or omission of the carrier
done with intent to cause damage, or recklessly and with knowledge that damage would probably
result

6. The New India Assurance Co. Ltd. Vs Priya Blue Industries Pvt. Ltd.
Citation : 2011 Caselaw 205 SC

The Supreme Court has dismissed the appeal of New India Assurance Company which had
rejected the claim of a ship-breaking firm for compensation. The firm bought a Belgian vessel
and was bringing it from Singapore on its ‘funeral voyage’ to Alang port in Gujarat for
demolition. It wrecked on way in high seas due to bad weather. The ship was covered by marine
insurance and the ship-breaker invoked the policy. The insurer rejected the claim leading to
litigation in the consumer forum. The National Consumer Commission asked the insurance
company to pay Rs 14 crore with 9 per cent interest to Priya Blue Industries, the scrap dealer in
ships. However, the insurer appealed to the Supreme Court. It ruled that the loss suffered due to
the ship wreck was properly assessed by the surveyors and the commission order was correct.

7. National Commission Judgment passed in Oriental Issuance Co. Ltd. Vs.

Kamal Tours and Travels published at III (2011)CPJ 39 (NC)
FACTS:
The facts of the case are that the Respondent who was the original complainant before the
District Forum had purchased a vehicle No.HR-38ET 2999 on hire purchase basis and got the
same insured with the Petitioner/Insurance Company for a sum of Rs.3,65,000/- covering own
damage risk for a period of one year w.e.f. 29.03.2001 to 28.02.2002. On 18.05.2001, the vehicle
which was being driven by one Shri Pawan Kumar and carrying other persons met with an
accident near Village Chikanwas Hissar Road, Haryana. The driver, Pawan Kumar and one other
person died in the accident and other occupants sustained injuries. There was total loss of the
vehicle. Respondent thereafter lodged a claim with the Petitioner/Insurance Company in respect
of the loss caused by the road accident. Petitioner/Insurance Company appointed one R.L.Gupta
as Surveyor who assessed the loss at Rs.2,57,455/-. The claim of the Respondent was, however,
not settled despite reminders and therefore, Respondent filed a complaint with the District Forum
requesting that the Petitioner be directed to pay Rs.3,65,000/- along with 12% interest,
Rs.5,000/- towards cost of litigation and Rs.25,000/- towards suffering, mental agony and unfair
trade practice.

ISSUE:

Petitioner/Insurance Company challenged the above contentions of the Respondent. While it is

true that the vehicle was insured by the Petitioner/Insurance Company, it came to light after the
accident that the Respondent had sold this vehicle to one Harbans Lal vide receipt No.19508
dated 12.04.2001 for Rs.2,83,000/-. The payment was made through an SBI demand draft for the
above amount. The fact of transfer of the ownership of the vehicle was not informed to the
Petitioner/Insurance Company. Petitioner/Insurance Company also came to know that the
insured vehicle was initially purchased on hire purchase basis with Standard Chartered Bank and
the financer bank had already received the payment of loan including the interest at the time of
its re-sale. Further the Respondent failed to submit the valid driving licence of the driver on the
date of accident despite 8 reminders sent by the Petitioner/Insurance Company.

REASONING:

Since the Respondent did have any insurable interest at the time of the accident, we set aside the
order of the State Commission and accept the revision petition with no order as to costs.
Comment:

So far as the insurance policy is concerned, it is qua the vehicle and not qua the person. If such
kinds of plea as raised by the appellant are allowed then appellant will in both cases unsaddle
itself from the liability against the insurance policy. If the original owner files a claim the
insurance company will take plea that since he has sold the vehicle therefore he has no insurable
interest and if the subsequent purchaser of the vehicle files the claim then the insurance company
will take the plea that since his name has not been transferred in the Registration Certificate or in
the insurance policy therefore he too has no insurable interest.

8. New India Assurance Co. Ltd. vs. G.N Sainani MANU/SC/0814/2010

FACTS:

The complainant is an assigned of two insurance policies taken out by M/s Ajanta paper and
General products Ltd., from the appellant being the insurer. One policy was to insure 244 bales
computer wastes computer prints out valued at Rs. 5,87,000/- and the second was for 170 bales
computer waste computer print out valued at Rs. 4,04,000/- to cover the risk from the port of
onward to Bombay. The consignee was informed that on the expiry of 60 days time limit from
the date of discharge at the port of Muscat. the risk under the policy in question would cease.

The consignee, being the insured. preferred a claim for Rs. 1,74,708,52 and for Rs. 3,99,007,52
on account of short handing of the consignment under transshipment and obtained the short
handing certificates issued by the Bombay port Trust docks of Bombay. The claim was,
therefore, on account of shortage of goods.

ISSUE: The issue falls for our consideration is whether by not extending the insurance cover
during retranshipment and not repudiating the insurance claim on flimsy grounds whether it
constitutes deficiencies in the service?

REASONING: It was held that insurable interest over a property is such interest as shall make
the loss of the property to cause pecuniary damage to the assured and under this case it will make
a damage to the interest of the insured.

COMMENT:
In this case, the Court was examining a complaint filed by the appellant insurance company
under the Consumer Protection Act. The question that arose was whether the assignee could be
said to be a beneficiary so as to be able to make the complaint. What had been assigned was
found to be the amount of the loss that was suffered by the assured on account of short landing of
the concerned goods, meaning thereby that what had been assigned was the right to recover the
loss. It was merely the assignment of a right to sue for the loss on account of short landing. It
was, therefore, difficult to see how it could be said that the assignee was the beneficiary of any
service. While the assignee might have the right to recover the loss from the insurer by filing a
suit in a civil court, he could not avail of the remedy under the Consumer Protection Act because
he was not a consumer.

9. United India Insurance Company v. Mrs. Parmeshwari Sawhney AIR

2010 Jammu and Kashmir 138
The litmus test, thus, as laid down in "United India Insurance Company v. Mrs. Parmeshwari
Sawhney", ", to determine whether a person has an "insurable interest" in the insured property is
to see whether the person claiming "insurable interest" would suffer pecuniary loss in the event
of loss to property and would draw benefit from preservation of the insured property.12. In the
present case, the insured though not an absolute owner of the insured property, is not a stranger
to the property. The insured is the father of the recorded owners of the property and also in
lawful possession of the insured building running his business in part of the building and using
other part of the building for residential purposes along with his two sons - recorded owners of
the building. The respondent has not only insured the building owned by his two sons but also
stock-in-trade, deep freezer, fridges, soda machines, coffee machine and other appliance
admittedly owned by him, with the appellant - Insurance company.

10. New India Assurance Co. Ltd. v. Maha Singh 2014 ACJ 881 , (2013)
Brief facts of the case are that complainant/respondents tractor HR 21A 6330 was insured by
OP/petitioner for a period of one year from 2.5.2002 to 1.5.2003. Complainant sold this tractor to
Wazir Singh. On 16.1.2003, tractor was stolen by some unknown person, so, FIR was lodged on
11.2.2003 and intimation was given to OP. Complainant submitted claim before OP, which was
repudiated. It was further submitted that Wazir Singh, purchaser of the tractor filed Complaint
No. 487 of 2004 before the District Forum which was decided on 2.12.2007 and complaint was
dismissed with liberty to the complainant to file fresh complaint. Alleging deficiency on the part
of OP, complainant filed complaint before District forum. OP resisted complaint and submitted
that as tractor had already been sold by complainant to Wazir Singh on 28.8.2000 and tractor was
being used for transportation of stones for commercial purposes and as complainant had no
insurable interest in the tractor at the time of theft and as intimation of theft was given to OP on
1.5.2003 by State Bank of Patiala, OP has not committed any deficiency in repudiating the claim
and prayed for dismissal of complaint. 

In the present case complainant had already sold the vehicle to Wazir Singh long before the
accident and obtained insurance policy without any insurable interest which was void ab initio.

CONCLUSION
To prevent gambling insurable interest is necessary. If insurable interest is not required, the
contract would be gambling contract and would be against public interest. For example you can
insure the property of another and hope for an early loss. One can similarly insure the life of
another person and hope for an early death. These contracts would be gambling contracts and
would be against public interest and public policy and so need to be checked and stopped.
If insurable interest is not required, a dishonest person could purchase a property's insurance
belonging to someone else and then deliberately cause a loss to receive the proceeds; but if the
insured stands to lose financially nothing is gained by causing the loss. Thus moral hazard is
reduced. In life insurance, insurable interest requirement reduces the incentive to murder the
insured for the purpose of collecting policy claim or anyone can set fire his home to claim the
fire insurance claim or one can kill any third person insured by him.

The concept is also important to measure the amount of the insured's loss in property insured.
Most of the property insurance is contracts of indemnity and the measure of recovery is the
insurable interest of the insured. In the event of loss, payment cannot exceed the amount of one's
insurable interest as the principle of indemnity shall apply. Thus it can be finally concluded from
whole discussion that the insurable interest is very important ingredient of the insurance and it
could be said that without insurable interest in subject matter of the insurance there can be no
insurance.

REFERENCES
1. MANUPATRA
2. SCC ONLINE
3. INDIAN KANOON
4. LEXISNEXIS