Study Notes on Insurable Interest in Property Insurance

Class Details

• The class is recorded and will be uploaded.

  • Issues with accessing the first class have been reported and will be addressed with IT.

  • Past insurance law class recordings are accessible via Noodle.

Exam Format Changes

• University may no longer require a 24-hour take-home exam.

• Students should prepare for a 2-hour in-person final exam format until further notice.

Insurable Interest in Property

Definition

• Interest in property must exist at the time of loss, contrasting with life insurance where interest is required at the time of the contract.

  • Legal or equitable rights in the property or contractual rights are sufficient for establishing insurable interest.

Important Case Reference: Lucina and Crockford

• Lord Eldon, Lord Chancellor, defines insurable interest in terms of enforceable legal or equitable rights, which may be lost due to contingencies affecting possession or enjoyment of property.

Tradition vs. Modern Interpretation

• Traditional view suggests that legal or equitable rights are sufficient for insurable interest, now considered too narrow.

• Justice Lawrence's Structural Expectation Test, advocated in Lucina and Crockford, suggests a broader view:

  • Effective insurable interest when there’s a moral certainty of profit or loss.

Key Case: Cosmophilus (Canada)

• The Supreme Court of Canada preferred Justice Lawrence’s moral certainty/factual expectation test over Lord Eldon's narrow proprietary rights test.

• Current understanding: If a party stands to benefit from the existence of the subject matter or suffers prejudice from its destruction, they possess a sufficient interest.

Other Relevant Cases

• Discussions include cases such as Mark Rolland, Petrofenia, National Oilwell Limited, and others that illustrate the evolution of the test for insurable interest.

• No need currently to establish proprietary rights in the subject matter. For instance:

  • A licensed user of a boat may insure the boat if they stand to benefit from its existence or suffer loss from its destruction, despite lacking ownership.

Examples

1. Real Estate Agent

   • Has no ownership interest but stands to lose commission (3-5%). Can insure the property for the potential loss of commission.

2. Vendor and Purchaser in a Property Sale

   • Question posed: Can both parties insure the same property?

   • Vendor (legal title) can insure for full value due to legal interest.

   • Purchaser (under an agreement) can insure but may not be able to recover full value unless they hold a legal interest.

Concept of Insurable Interest in Sales Contracts

• The vendor receives full payment before transfer of title. The vendor may not have a valid insurable interest at the time of loss (e.g., if the property is destroyed).

• Purchaser must have their own insurance as vendor’s insurance doesn't cover purchaser's losses post-title transfer.

• Emphasizes understanding differing principles between indemnity and life insurance.

Insurable Interest Principles

• Emphasis on distinguishing between life insurance (interest at the time of the contract) and property insurance (interest at the time of loss).

• Analyze issues using court case references to understand the evolution of insurable interest criteria.

Subrogation Principle

1. Definition: The ability of an insurance company to pursue a third party for compensation after paying a claim to its insured.

   • Collects compensation from third parties for losses they have covered under the insured’s policy.

2. Subcontractors' Interests: Discusses whether subcontractors can insure the entirety of a project.

   • Courts determine that subcontractors have insurable interests due to their liability exposure impacting the entire contract.

3. Liabilities in Negligence: After an incident, the insurance company can step into the insured's position to pursue the responsible party.

Key Takeaways

• Insurable interest criteria for property insurance have evolved; moral certainty now plays a significant role.

• Students should be adept at applying principles surrounding insurable interest and understanding the distinctions between life and property insurance within exam scenarios.

• Emphasis on detailed understanding of specific cases to appreciate the development of law in this area.

Next Steps

• Upcoming class sessions will focus on various topics including good faith principles in insurance and further discussions on subrogation.

• Students are encouraged to read specific cases and related literature to bolster their understanding of discussed principles.