FACULTY OF LAW

UNIVERSITY OF IBADAN
LCI 401 – Nigerian Law of Insurance I
(c) K. Anifalaje, 2022

INSURABLE INTEREST

As a general rule, the insured or assured is required by the Nigerian law to possess an
insurable interest in the subject matter of an insurance and any policy of insurance executed
without this interest is unenforceable being either void or even illegal. Thus, in Re British &
French Bank Ltd, Jia Enterprises Ltd v British Commonwealth Insurance Ltd
(1962) 1 All NLR 363, the Federal Supreme Court rejected a bank’s application to be
joined in a suit for a claim on an insured property. The court held that the bank had “no share
or interest” in the subject matter of the suit which was the property insured by the plaintiff
with the defendant insurers even though the property was offered to the bank as security for a
loan.

Macaura v Northern Assurance Coy Ltd (1925) A.C. 619 where the House of Lord
held that the claimant had not either as shareholder or creditor, any insurable interest in the
timber which had been insured against fire with insurance companies.

The reason for the unenforceability of an insurance contract not supported by an insurable
interest was given by Phillimore J. in Cosford Union v Poorlaw and Local Government
Officers Mutual Guarantee Assurance Ltd (1910) 103 L.T. 463 at 465 that:

Anybody who sues upon a policy can only sue in respect of his
own interest, unless by special provision the law allows it, the
policy is made for the sake of another or unless some statute says
the policy shall endure for the benefit of someone else.

LEGAL NATURE OF INSURABLE INTEREST (Validity of

Insurable Interest)

Literally, and in spite of the fact that it now appears to be a technical term, an “insurable
interest” simply means an interest that is capable of being validly insured against any loss or

1
injury thereto and no more. However, on the vexed question of validity, two issues must be
resolved in order to clarify the correct legal position. 1. The first is the legal nature of the
insurable interest which the insured must possess; 2. the second is the subtle distinction
between insurance properly so-called and a wager which is absolutely unenforceable.

Test of insurable interest

The type of insurable interest which the assured is required to possess in the subject matter
of insurance has been variously described as “pecuniary interest” which is one “capable of
valuation by a court of law” or a “property interest” in that subject matter. The underlying
theme therefore is that a valid interest must be proprietary in order to provide the legal right
to insure.

The TEST for whether a person has insurable interest in the subject matter of insurance or
not IS WHETHER OR NOT THE INSURED WILL BE IN JEOPARDY if that subject
matter is damaged or destroyed.

The question is: what item of real value as opposed to moral, imagined or emotional value
will the insured lose by the damage of the subject matter of insurance; or what detriment will
he suffer thereby? To possess a valid or good insurable interest, the insured must therefore
stand to lose directly if the eventuality, or risk or peril insured against occurs. This was
expressed in Law Union & Rock Insurance Ltd v Onuoha (1998) 5 NWLR (Pt. 555)
576, the Court stated that:

A person who would foreseeably suffer financial loss from the

occurrence of an event has an insurable interest in the subject matter
which it sought to insure against the event.

Similar sentiments were echoed by the court in Lucena v. Crauford

In British India General INS Coy (Nig) Ltd v Thawadas (1978) 3 S.C. 143 wherein
the respondent/plaintiff suffered non-delivery of certain cartons of sardine which were insured
with the appellant/defendant. In an appeal on an action claiming the value of the consignment,
appellant contended at the supreme court that the respondent had no insurable interest in the
subject matter of insurance as the insurance was taken out by Shalom, the company. The court
stated that the cartons of sardine were a valuable source of food to many and its loss was a
heavy material loss. The court stated that they were of the opinion that the respondent who

2
had suffered non-delivery of this consignment has an insurable interest and dismissed the
appeal as lacking in merit.

See also: Adefuye & C0 v Royal Exchange Assurance Coy ((1962) L.L.R. 43

Note however, that the loss or benefit must depend on actionable legal rights. Mere possibility
of loss or gain which is not founded on any right or liability in respect of the subject matter
insured is not enough.

Distinction between insurance and wager

On the subtle distinction between insurance properly so – called and a wager, it is to be noted
that both are to some extent superficially similar in the sense that the event contemplated by
the parties in both cases are uncertain. But, indeed, in at least two material respects, they
differ, namely:

(1) the parties to a wager are convinced of the outcome of their respective positions and
undertake to forfeit the stake to any of them who is proved right. But, the parties to an
insurance contract are not sure if or when the peril insured against will happen. As far as they
are concerned, the occurrence of such an event is a contingency, never a certainty.

(2) In a wagering contract, beyond the stake, nothing else is at risk or may be lost. In respect
of an insurance however, beyond the premium, the insured or assured must stand to lose the
subject matter of the insurance if the peril insured against occurs. Thus, the parties to a wager
have no insurable interest in the subject matter of the contract.

It goes without saying therefore, that unless it is supported by an insurable interest, an

apparent insurance contract would be nothing more than a wager which although is not
necessarily illegal, but as we have seen is clearly unenforceable unless the insurer is willing to
waive the nullity as in Thomas v National Farmers Union Mutual Insurance Society
(1961) 1 W.L.R. 386 or the court is disposed to apply the principle ut res magis valeat
quam pereat to uphold the contract.

However, in Stock v Inglis, (1885) 10 A.C. 263, Brett, M.R. stated that in his opinion, “it is
the duty of the court always to lean in favour of an insurable interest, if possible.”

If however, insurable interest is required by a statute, such as the Life Assurance Act 1774
(U.K.) (apparently a Statute of general application ) and sections 56 – 58 of the Insurance Act
2003, the absence of it would render the contract not merely void but also illegal and it is

3
impossible for the insurer to waive the illegality. In Anctil v Manufacturers Life
Insurance Coy (1899) A.C. 604, in an action on a policy of life insurance, it was held that
the plaintiff was not a lawful holder. As “the protector of the deceased whenever he stood in
need of protection”, he had not an insurable interest in his life within the meaning of art. 2590
of the Civil Code of Lower Canada.

The court in such a case must not enforce the contract even if the illegality is not pleaded.
Thus, in Gedge v Royal Exchange Assurance Corporation (1900) 2 Q.B. 214, a claim
under an illegal marine insurance was not enforced by the court, although defence was not set
up by the underwriters.

DESCRIPTION OF INSURABLE INTEREST IN A POLICY OF INSURANCE.

As a general rule, the assured is not required to volunteer any information about the type or
the quantum of his interest in the subject matter of the insurance provided that he has
sufficiently described the subject matter of the insurance in adequate terms. Thus, in Crowley
v Cohen (1832), the court held that the description “on goods and merchandise” in the
insurance policy was sufficient to cover the interest of carriers in the property under their
charge, for in general, if the subject matter of insurance be rightly described, the interest in it
need not be specified. The court reached a similar verdict in Tomlinson v. Hepburn

Therefore, a person effecting a property insurance is under no duty to the insurer to describe
the nature of his interest in it.

In the same vein, an insurer effecting a re-insurance of his risk is under no duty to specify his
interest to the other insurer as established in Mackenzie v Whitworth.

Exception 1

Note however, that where disclosure of the insurable interest of the insured is express term of
the insurance contract, any condition thereby imposed must be complied with otherwise, the
insurer will not be liable. In The London & North Western Railway Co v Glyn (1859) 28
QB 188, where the insurance policy had a condition that goods held in trust would not be
covered unless they were insured as such. The plaintiffs as bailees satisfied this requirement
in insuring goods held by them in trust. The office contended that as the plaintiffs as bailee,
had no insurable interest in the goods beyond their lien, they could only recover to the amount
of such lien. But the court held that the plaintiffs were entitled to recover to the full amount
insured.

4
Exception 2

Also, an insurable interest must be disclosed, if it is an extraordinary or collateral interest.

Thus, in an insurance on a supermarket which will not of itself include profits earned on the
business carried out there, the insured will have to specifically insure the profits before they
could be recoverable. See Maurice v Goldsborough Mort & Co (Supra).

Exception 3

Furthermore, in certain situations, failure to disclose the nature and extent of an insurable
interest, will be an evidence of a concealment of a material fact by an insured which could be
fatal to a claim by the insured on the policy. It was stated on this ground in Anderson v
Commercial Union (1885) 55 Q,B, 146, that the fact that the assured was a tenant-at-will
ought to have been disclosed because it affected the exercise of the insurer’s option to
reinstate the property.

ALTERATION OF THE INTEREST IN INSURED PROPERTY

An alteration of the insured’s interest during insurance period will not affect the validity of
the contract if the insurance is upon a property on which no insurable interest has been
specified and where there is no prohibition of an alteration of such interest in the policy. See
Castellain v Preston (1883) 11 Q.B. 380 at p. 385. In the instant case, a vendor contracted to
sell to a purchaser a house, which had been insured by the vendor with an insurance company
against fire. The contract contained no reference to the insurance. After the date of the
contract, but before the date fixed for completion, the house was damaged by fire, and the
vendor received the insurance money from the company. The purchase was afterwards
completed, and the purchase money agreed upon, without any abatement on account of the
damage by fire, was paid to the vendor. In an action by the plaintiff company against the
vendor that the company were entitled to recover a sum equal to the insurance - money from
the vendor for their own benefit, it was held that the vendors had an insurable interest in the
property, because they were at all events the legal owners of the property, and secondly,
because the vendees or third persons, might not carry out the contract, and if, for any reason
they should never carry out the contract, then the vendors, if the house was burnt down, would
suffer the loss.

A similar decision was reached in Collingridge v The Royal Exchange Assurance

Corporation (1877) 3 Q.B. 17

5
WHEN THE INSURED IS REQUIRED TO POSSESS INSURABLE INTEREST

As a general rule, the insured is required to possess insurable interest in the subject matter of
the insurance both at the inception of the insurance and at the time of the loss. In case of
property and fire insurance in particular, it is mandatory for the insured to possess insurable
interest not only at the inception of the policy but also at the time of loss. See Castellain v
Preston (Supra);

However, either in accordance with the requirements of an applicable statute or because it is

simply reasonable or just, the courts have developed a number of exceptions where the
insured will not be required to possess an insurable interest in the subject matter of the
insurance either at certain stages or even at any time, during the period of insurance. This
partial or absolute dispensation with time requirement will be considered under the following
five sub-headings:

(1) Where insurable interest necessary only at the time of the insurance

The assured in a life insurance policy is only required to show that he had insurable interest at
the inception of the policy. In the leading case of Dalby v India & London Life Assurance
Coy (1854) 24 L.T. 182, an insurance company which had granted a policy to a creditor on
the life of the debtor re-insured with the defendants in order to cover itself against a loss under
the policy. The original policy was later cancelled but the re-insurance was kept up. The
defendant re-insurers who refused to pay on the death of the debtor contended that both the
original assured and the original insurer no longer had an insurable interest in the debtor’s
life. Defendant’s contention was however rejected and the action succeeded on the ground
that the assured was only required to have insurable interest at the time the policy was
effected.

This decision is regarded as sufficient authority for the proposition that the express words of
the Life Assurance Act, 1774 (U.K.) and the Nigerian Insurance Act, section 56(1), that
the assured should have insurable interest in the subject matter of the insurance refer to
interest at the date of the policy and at that date only.

(2). Where insurable interest unnecessary at the time of insurance

6
A unique exception in this respect is to be found in Marine Insurance. The insured need not
possess any interest in the subject matter of the insurance at the inception of the policy
provided that he has an insurable interest therein at the time of the loss. See section 8(1) of the
Marine Insurance Act 1961.

(3). Where insurable interest necessary only at the time of loss.

In all insurance contracts of indemnity, the insured must show that he has an insurable interest
at the time of loss, otherwise, he cannot recover under the policy. See Macaura v Northern
Assurance Coy (1925) A.C. 619 at p. 632 where the court stated that a fire insurance policy
is not an aleatory contract, but is a contract of indemnity under which the assured must aver
and prove interest at the time of the loss. This is a part of the law of insurance, quite
independently of the Gaming Act, though the consequence of the failure to prove interest is
the same – namely, that the policy is unenforceable by an uninterested assured. See also
Adefuye v Royal Exchange Assurance Coy (Supra).

In Anderson v Morice (1876) 1 A.C. 73, it was held that the purchaser of a “cargo” of rice
which is to be loaded on board a ship expected to arrive at a certain port, where it is to load
for a voyage, he agreeing to pay a sum certain “per c.w.t., cost and freight” has no insurable
interest in the purchase, so that should the rice put on board be lost before the loading is
completed, he cannot recover on a policy of insurance effected on goods in the vessel.

Note however, that the requirement as to time for insurable interest in respect of an indemnity
policy is subject to the express or implied term of the contract itself. Since all insurance
transactions are contractual and therefore, subject to contractual terms. Thus, in Thomas v
National Farmers Union Mutual Insurance Society Ltd (1961) 1 W.L.R. 386, the
wording of the policy enabled the insured to recover on a fire policy although he had no
insurable interest at the time of the loss. The insurers in that case had waived their right to
demand proof of loss under the indemnity contract.

(4) Where insurable interest unnecessary at the time of loss.

In quite a number of contracts, including life insurance, insurance of goods by an agent for a
disclosed principal and valued policies, the insured does not have to possess an insurable
interest in the subject matter of the contract at the time of loss. The life insurance, not being a
contract of indemnity requires no proof of interest at the time of loss as seen in Dalby v
India & London Life Assurance Coy. (Supra). An agent who takes out a policy of

7
insurance on goods belonging to his principal does not have to show that he personally has an
interest in such goods at the time of loss. Once the principal has adopted the policy, either he
or the principal may sue on it.

See also Provincial Insurance Co of Canada v Ladoc

Also, in cases of valued policies especially on buildings, the insured is not required to possess
an insurable interest in the subject matter at the date of loss. See Crozier v The Phoenix
(1870) 13 NBR 200.

(5) Where insurable interest always unnecessary

An agent who has taken out a policy of insurance on goods owned by his principal to protect
the latter’s interest does not have to possess an interest in such goods at any time for the
insurance to be enforceable provided he has disclosed his principal in the policy and the
principal has ratified the policy after its inception but prior to the loss.

See Prudential Staff Union v Hall (1947) K.B. 685.

SOME LEGITIMATE CATEGORIES OF INSURABLE INTEREST

Despite the strict general requirement that the insured or assured must have an insurable
interest at one point or the other in the subject matter of insurance, this requirement has been
met in numerous cases. The categories of insurable interests upheld by the courts are
widespread and perpetually open. If therefore, a person can show a vulnerable interest in any
life or property, the court will readily find such to be an insurable interest. A few examples of
the many cases where the courts have found insurable interests should suffice as illustration
and they are enumerated as follows:

(i) A person has an unlimited insurable interest in his own life.

In order to satisfy the requirement of insurable contract, insurable interest in one’s life is
meant for the beneficiary who will suffer more the loss of the breadwinner in the family if no
such provisions are made. See Wainwright v Bland (1836) 1 M & W 32.

(ii) A man has an insurable interest in the life of his wife. See Griffiths v Flemming (1909)
1 K.B. 805

(iii) A woman also has an insurable interest in the life of her husband.

8
See M’Farlane v The Royal London Friendly Society (1886) 2 T.L.R. 755.

In fact, in these three cases, insurable interest is conclusively presumed. Moreover see
section 56 of the Insurance Act 2003.

(iv) A creditor has insurable interest in the life of the debtor to the amount of the debt and the
interest due thereon at the inception of the policy.

See Dalby v India & London Life Assurance Coy (Supra).

(v) Any owner of a limited interest in land such as we have under the Land Use Act, has an
insurable interest up to an amount sufficient to compensate him for the loss of his estate. See
Castellain v Preston (Supra)

(vi) Executors, Trustees and Administrators who hold the legal title to any property and the
beneficiaries under a Will or Trust may insure the property independently, each in respect of
his own interest. See Lucena v Crauford (Supra)

(vii) A bailee has a personal insurable interest in the goods bailed to him to the extent of any
value of any lien or charge he may have on them for his rent or service charges and his
personal liability to their owners. See Maurice v Goldsborough Mort & Co Ltd (Supra)

In Waters v Monarch Life and Fire Insurance Coy. (1856) 25 Q.B. 102, it was held that
warehousemen and wharfingers with whom goods are deposited, have an insurable interest in
such goods although there has been no previous authority to insure given by the real owners,
nor any notice given to them of such insurance. Such goods are properly described in a policy
as “goods in trust”. The insured are entitled in such a case to recover from the insurance
office, the full value of the goods destroyed by fire, but are liable to account to the true
owners for the excess of the money received beyond the amount of their own charges in
respect of such goods.

(viii) A contractor has an insurable interest in the subject matter of the contract up to the value
of the work done and materials expended and on his expected profits if specifically insured.
See Gillett v Mawman (1808) 1 Taunt 137.

SOME ILLEGITIMATE CATEGORIES OF INSURABLE INTEREST

9
It is well-known by now that the test whether or not there was an insurable contract or a
wagering contract is established by the presence or absence of an appropriate insurable
interest in the subject matter of insurance. Wagering contracts are in this respect not restricted
to gaming or betting but covers all cases where the insured or assured lacks a good insurable
interest in the subject matter of insurance. The cases in which the courts have found such
interest lacking and in which the insured or assured have consequently been unable to enforce
the contract are indeed many. A few examples are considered as follows for purposes of
illustration:

(i) Unless there is some pecuniary interest, a parent has no insurable interest in the life of a
child, nor the child in the life of his parent and a fortiori, no interest arises from any more
remote relationship. See A.G. V Murray (1903) 2 K.B. 64.

However, in Nigeria, see the position of the law as stated in section 56(3) of the Insurance
Act 2003.

(ii) A debtor does not have any insurable interest in his creditor’s life. See Hebdon v West
(1863) 7 L.T. 854

(iii) A single creditor also has no insurable interest in the property of his debtor.

See In Re British & French Bank Ltd; Jia Enterprises v British Commonwealth
Insurance Ltd (Supra); Royal Exchange Assurance Co v Anumnu (Supra); Macaura
v Northern Assurance Coy (Supra).

(iv) A bare consignee to whom goods are consigned as agents for the owner has no insurable
interest in them. See Seagrave v Union Marine Insurance Coy (1866) 14 L.T.479.

(v) A mere hope or expectation cannot be insured. – University of Nigeria v Turner

(Supra)

STATUTORY REFORMS OF THE PRINCIPLES OF INSURABLE INTEREST

Section 56 – section 59 of the Insurance Act 2003.

As a rule, where any person has assured the life of another or he has insured any other subject
matter in neither of which he has an insurable interest, or where he has insured any of the

10
subject matter by way of gaming or wagering, any insurance thereby made is null and void. –
section 56(1) Insurance Act.

In this section, “insurable interest” has been defined with the usual dual test of “safety” and
“prejudice” to the subject matter of insurance.

Thus, a person is said to possess an insurable interest in the life of any other person or in any
subject matter if on account of his legal relationship to another person or any subject matter,
he enjoys some benefit by the safety of that person or other subject matter but will suffer
some prejudice by the death of that person or loss of that subject matter. – section 56(2)

Moreover, the term “legal relationship” in this definition of insurable interest has been partly
defined (with reference to the insurance of another person’s life) to include the relationship
often created under either Islamic law or customary law whenever one privileged person
assumes the moral duty to maintain and care for a less privileged person. – section 56(3).

As a rule, it would be illegal for any person to make any policy of insurance on the life of any
person or in respect of other subject matter without expressly mentioning therein, the intended
beneficiary by name whether as a person interested in the policy or as a person for whose
benefit or on whose account the policy has been made. – section 57(1).

However, a policy of insurance for the benefit of a group of unnamed persons belonging to a
class or answering a description as beneficiaries from time to time will not be invalid because
of failure to state their names in the policy if the identity of the respective beneficiaries is
ascertainable from the description of that class in the insurance policy. – section 57(2).

Unless it is otherwise permissible under any other statute, in the event of the death of the
insured or of the loss of any other subject matter, a person who has an insurable interest in an
insurance on a person’s life or on any other subject matter has no right to recover from the
insurer a sum of money greater than the insured value of the interest of the insured either in
such life or such other subject matter. – section 58.

Note that the foregoing statutory reforms contained in the foregoing sections 56 – 58 have no
application to the insurance of ships and carriage of goods by sea.. – section 59.

11