For a contract of insurance to hold good in a court of law, it is important for the insured to have the right type of interest in the subject matter – an insurable interest. This is in addition to the rest of the essentials required to form a valid contract. Without an insurable interest, the contract is only a wager. An insurable interest can be defined as a relationship that an insured has with the subject matter of insurance which may be in the form of life or property. This is especially important in life and marine insurance.
In marine insurance contracts, insurable interest of the insured is a special requirement for the contract to be valid. In a marine insurance contract, the insured is promised by the insurer to be indemnified against any loss which is caused by sea perils to the subject matter which may be the ship or goods carried in it depending on the policy clauses.
To qualify as an insurable interest, the subject matter should be a physical one that has exposure to marine perils and there must be a legal relationship between the assured and the subject matter in which case he would be harmed by the loss or damage of the subject matter. Such Insurable interest should be in existence at the time the damage occurred and it is not necessary for the insurable interest to exist at the time the policy was effectuated. The marine policy is considered valid even if it is insured without the assured being interested in the subject matter but later on acquires interest at the time of loss.
A marine insurance policy is similar to a fire insurance policy. Both are personal contracts and hence till the actual possession of the subject matter, the insurable interest continues to remain. If through an agreement, the title has been transferred to another person, the insured loses his interest in it and the policy ceases to exist. Where a seller of goods has interest in the property, he can insure it to the extent he has interest in it.
In case of Tomlinson v. Hepburn, the House of Lords observed that the earners have an insurable interest in the goods and the value is recoverable under the insurance policy, and the carrier must account to the owners for their share of the loss after subtracting what was meant for them as carriers.
Originally posted on www.kpalegal.com on 5th July 2021