INSURABLE INTEREST

INTRODUCTION

The law of insurable interest is set out in general terms in s 5 of the Marine
Insurance Act 1906. The main requirement of insurable interest is, it would
appear, to stamp out wagering contracts. It is also linked to the fact that a
contract of marine insurance is a contract of indemnity; thus, an assured
must first show that he has suffered a loss before he can put in a valid
claim under the policy. A person can only suffer a loss if he has an interest
in the subject matter insured; if he has no interest in the subject matter
insured, he suffers no loss, and the contract of insurance is effectively a
gamble or a wager, and, therefore, void under s 4 of the Act.
To have an insurable interest the assured must be ‘interested’ in a marine
adventure. In the language of s 5(2), ‘…a person is interested in a marine
adventure where he stands in any legal or equitable relationship to the
adventure or to any insurable property at risk therein’. That this covers a
wide range of persons is obvious: it includes the owner of the insurable
property, a mortgagee and even an insurer. Apart from these three main
classes, there are also other persons who might have an insurable interest
in the subject matter insured, such as agents, executors, lien holders and
trustees. The general principles applicable are the same in all cases.
The concept of insurable interest is broad; a person does not have to
have a whole interest in the subject matter insured. The Act provides that
limited forms of interest are also insurable, such as a partial interest (s 8),
and a contingent or defeasible interest (s 7). The latter are interests the
acquisition of which depends upon certain contingencies; for instance, a
buyer may reject the goods on arrival if he is not satisfied with their
condition, in which case the property in the goods reverts to the seller. The
main problem with insurable interest concerns the time at which the interest
must attach; as a general rule, the assured must, at the time of the loss,
have an insurable interest in the subject matter insured. In contracts of
international sale of goods, it is not always easy to ascertain at any given
time whether the property has in fact passed from seller to buyer.
The law recognises certain exceptions to the general rule that the
assured must have an insurable interest at the time of the loss. First, if the
policy offers cover on a ‘lost or not lost’ basis, then the assured is,
according to the proviso to s 6(1)1 permitted to recover under the policy
even though the loss was sustained before the insurance was effected.
This exception operates to protect an assured who might have purchased
goods without knowing whether or not they have already been lost at sea.
Secondly, an assignee of a policy can acquire an interest in the subject
matter insured even though the policy was assigned to him only after the
loss, provided, of course, that the assignor himself had, at the time of
assignment, an interest to assign.2

DEFINITIONS OF INSURABLE INTEREST

Section 5 of the Act defines ‘insurable interest’ as follows:

(1)   Subject to the provisions of this Act, every person who is interested
in a marine adventure.
(2)   In particular, a 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 therein, in consequence of which he may
benefit by the safety or due arrival of insurable property, or may be
prejudiced by its loss, or by damage thereto, or by the detention
thereof, or may incur liability in respect thereof.

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.
Lucena v Craufurd (1806) 2 B&P (NR) 269, HL

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 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’.

Chambre J: [p 298] …To constitute an interest, such as that which in the
declaration is averred to be vested in the plaintiffs as Commissioners under
the Act, I presume it must be necessary to show that the ships and goods at
the time of the sailing, or at least before or at the times of the losses, had
become the objects of the plaintiffs commission. If they were not the objects
of their commission, I have no conception in what way they could have an
interest in them as Commissioners.
Lawrence J: [p 300] …It is first to be considered what that interest is, the
protection of which is the proper object of a policy of assurance. And this is
to be collected from considering what is the nature of such contract.
[p 301] …that insurance is a contract by which the one party in
consideration of a price paid to him adequate to the risk, becomes security to
the other that he shall not suffer loss, damage, or prejudice by the happening
of the perils specified to certain things which may be exposed to them.
[p 302] …That a man must somehow or other be interested in the
preservation of the subject matter exposed to perils, follows from the nature
of this contract, when not used as a mode of wager, but as applicable to the
purposes for which it was originally introduced; but to confine it to the
protection of the interest which arises out of property, is adding a restriction
to the contract which does not arise out of its nature…A man is interested in a
thing to whom advantage may arise or prejudice happen from the
circumstances which may attend it… And whom it importeth, that its
condition as to safety or other quality should continue: interest does not
necessarily imply a right to the whole, or a part of a thing, nor necessarily and
exclusively that which may be the subject of privation, but the having some
relation to, or concern in the subject of insurance, which relation or concern
by the happening of the perils insured against may be so affected as to
produce a damage, detriment, or prejudice to the person insuring: and where a
man is so circumstanced with respect to matters exposed to certain risks or
dangers, as to have a moral certainty of advantage or benefit [emphasis
added], but for those risks or dangers he may be said to be interested in the
safety of the thing. To be interested in the preservation of a thing is to be so
circumstanced with respect to it as to have benefit from its existence,
prejudice from its destruction. The property of a thing and the interest
 devisable from it may be very different: of the first, the price is generally the
measure, but by interest in a thing every benefit and advantage arising out of
or depending on such thing, may be considered as being comprehended.
Lord Eldon: [p 318] …Accordingly, the power of the
Commissioners is expressly limited to ships and goods that have
actually come, or been brought into the ports of Great Britain…and it
appears to me…that there is nothing in this Act of Parliament which
touches the prerogative while the ships and cargoes were at sea…
[p 321] …Since the 19 Geo 2, 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. I
have in vain endeavoured, however, to find a fit definition of that which is
between a certainty and an expectation; nor am I able to point out what is an
interest unless it be a right in the property, or a right derivable out of some
contract about the property, which in either case may be lost upon some
contingency affecting the possession or enjoyment of the party,
[p 323] …That expectation, though founded upon the highest probability,
was not interest, and it was equally not interest, whatever might have been the
chances in favour of the expectation.
[p 324] …If moral certainty be a ground of insurable interest, there are
hundreds, perhaps thousands, who would be entitled to insure. First, the dock
company, then the dock master, then the warehouse keeper, then the porter,
then every other person who to a moral certainty would have anything to do
with the property, and of course get something by it.

Notes

It can be seen from the above that Lawrence J had adopted a wide and
most liberal approach, whilst Lord Eldon, a narrow and more legalistic
approach to the term. It is pertinent to note that, recently, the ambit of the
concept of ‘insurable interest’ had occasion to be looked at afresh in a
trilogy of successive cases, the most notable of which is
the Moonacre case, below, all of which were presided over by the same
judge.3 Though these cases were not concerned with a hull policy of
insurance, nevertheless, the statements made by Colman J are significant,
for they provide us with a better insight into how the law of insurable
interest could be developed. A hint of recognition of a much more flexible
and wider interpretation of the notion can be gleaned from the language
used by Colman J. Whether the legal principle so expressed (in somewhat
generous terms) is indicative of the beginning of a new trend in this area of
law is, of course, yet to be confirmed: in this country, the precise scope of
the concept awaits judicial confirmation from higher authority. 4 It appears
that, in Canada5 and the USA, the wider test of Lawrence J is now
preferred.
Chalmers observes and warns: The definition of “insurable interest” has
been continuously expanding, and dicta in some of the older cases, which
would tend to narrow it, must be accepted with caution.’6 The same
sentiments are expressed in Arnould as follows: The legal conception of
insurable interest has been continuously expanding, and possibly the court
may, on some future occasion, continue this procession of expansion…’ 7
Anthony John Sharp and Roarer Investments Ltd v Sphere Drake
Insurance plc, Minster Insurance Co Ltd and EC Parker and Co Ltd,
‘Moonacre’ [1992] 2 Lloyd’s Rep 501

Insurance was taken out for the motor yacht Moonacre which, for all intents
and purposes, was owned by a Mr Sharp. But for tax purposes, a company,
Roarer Investments, incorporated in Gibraltar, was registered as owner
of Moonacre. Mr Sharp was then given power of attorney by the registered
company to sail and manage the vessel, and he was also named as the
assured in the contract of insurance. During the policy, whilst the single
crewman employed on board Moonacre was away, she caught fire at her
moorings and became a constructive total loss. When the assured, Mr
Sharp, sought to recover under the policy, the insurers declined payment
on the grounds, inter alia, that Mr Sharp did not possess any insurable
interest in Moonacre.
The court ruled that Mr Sharp did, in fact, have an insurable interest in
the yacht.

Deputy Judge Colman QC: [p 509] …Before considering these

submissions in detail, it is helpful to keep in mind the purpose behind
the requirement that the assured should have an insurable interest in
the insured property before he is permitted to recover under a marine
policy. By the beginning of the 18th century, a contact of marine
insurance could be enforced at common law by the assured
notwithstanding he had no personal interest in the subject matter of
the insurance, that is to say, even if he stood neither to lose nor to
gain from the success or failure of the adventure or the loss or survival
of the insured property. These contracts were, in substance, wagering
contracts. It was only by a 1745 Act (19 Geo 2 c 37) that such
contracts were declared to be null and void in respect of British ships
and their cargoes…The Gaming Act 1845, s 18, had the effect of
making void all contracts of insurance which were wagers by reason of
the assured’s lack of interest in the subject matter of the policy.
Eventually, by s 4 of the Marine Insurance Act 1906, it was provided:
(1) Every contract of marine insurance by way of gaming or wager
is void… [p 510] …Accordingly, the essential question to be
investigated in those cases which, since 1745, have been concerned
to test the existence of an insurable interest, has been whether the
relationship between the assured and the subject matter of the
insurance was sufficiently close to justify his being paid in the event of
its loss or damage, having regard to the fact that, if there were no or
no sufficiently close relationship, the contract would be a wagering
contract.
[p 510] …Neither the words of any statute since 1845 nor any judicial
pronouncement suggest that there should be a category of contracts of
insurance which were not wagering contracts but which, on account of the
absence of an ‘insurable interest’, should not be enforceable. Accordingly, in
approaching the construction and application of s 5 of the Marine Insurance
Act it is, in my judgment, right to proceed on the assumption that, provided
the assured has sufficient interest in the subject matter of the insurance to
prevent his contract being a wagering contract, he is entitled to enforce that
contract.
The starting point for consideration of the meaning of ‘insurable interest’
under s 5(1) is, clearly, s 5(2). This does not provide an exhaustive definition,
but it does identify three characteristics which the presence of an insurable
interest would normally require: (a) the assured may benefit by the safety or
due arrival of insurable property or be prejudiced by its loss or damage or in
respect of which he may incur liability; (b) the assured stands in a legal or
equitable relation to the adventure or to any insurable property at risk in such
adventure; (c) the benefit, prejudice or incurring of liability referred to at (a)
must arise in consequence of the legal or equitable relation referred to at (b).
…That which brings about the benefit to the assured from the safety or
due arrival of the property and that which brings about the possibility of his
prejudice from its loss, damage or detention or his incurring liability in
respect of such property must, therefore, be the ‘legal or equitable relation’ to
the adventure or property in which the assured stands. That must involve an
investigation of whether there have been conferred on him any rights
recognised by law or in equity or imposed on him any obligations so
 recognised in respect of the adventure or the insured property the enjoyment
of which rights may be lost or interfered with or the performance of which
obligations may be brought about or rendered more onerous by the incidence
of an insured peril.

Later, Colman J (as he became) was afforded further opportunity to discuss

the matter in National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2
Lloyd’s Rep 5828 (hereinafter referred to as NOW v DOL). This time, he
extended the definition of insurable interest to cover a case in which the
assured was not in possession of property, but his relation to it was such
that he may incur liability in respect of the property being damaged. NOW v
DOL was concerned with a dispute relating to defective equipment supplied
by NOW. Whilst NOW sought to recover in respect of unpaid invoices,
DOL counterclaimed, inter alia, that the plaintiffs (NOW) had no insurable
interest in any of the insured property after they had been delivered to
DOL. Not surprisingly, Colman J, relying on the Moonacre case, ruled that
NOW had an insurable interest by reason of their potential liability in
respect of loss or damage in the equipment.

Colman J: [p 611] …There is, in my judgment, in particular no reason in

principle why such a supplier should not, and every commercial reason why
he should, be able to insure against loss or damage to property involved in the
common project not owned by him and not in his possession. The argument
that, because he has no possessory or proprietary interest in the property, he
can have no insurable interest in it and that his potential liability in respect of
loss of or damage to it is insufficient to found such an insurable interest, is, in
my judgment, misconceived. That the presence of such an interest in the
proper insured is unnecessary to found an insurance interest was a point
which arose in Moonacre [1992] 2 Lloyd’s Rep 501, where the issue was
whether the plaintiff had an insurable interest in a yacht of which he was not
the registered owner, or the bailee or the charter, but which he merely sailed
under a power of attorney from the registered owner. I rejected the
submissions on behalf of underwriters that he had no insurable interest and I
endeavoured to explain that, in order to establish a sufficient relation to the
property in question, having regard to the decisions in Lucena v
Craufurd [1806] 2 B&P (NR) 269, John Anderson v James Farquhar
Morice (1876) 1 App Cas 713 and Macaura v Northern Assurance Co
Ltd (1925) 21 LlL Rep 333; [1925] AC 619, it might in some cases be
unnecessary to establish that the assured had any proprietary legal or
equitable interest in the goods: see pp 510–13.
 The suggestion that there cannot, as a matter of law, be an insurable
interest based merely on potential liability arising from the existence of a
contract between the assured and the owner of property or from the assured’s
proximate physical relationship to the property in question, is, in my
judgment, to confine far too narrowly the requirements of insurable interest.
There is nothing in the authorities which prevents such a relationship to the
property from giving rise to an insurable interest in the property for the
purposes of an insurance on property. In Stone Vickers v Appledore Ferguson
Shipbuilders, supra, I sought to explain the identification of an insurance
interest in such multi-participant projects in the passage at p 301 already
cited.
It is no doubt true that the conventional means of obtaining in the marine
insurance market protection against such liability for property damage is to
take out a liability policy, and for the purposes of such policy there is no
question that the assured would have an insurable interest in his potential
liability. But the fact that he has an insurable interest for that kind of risks
does not lead to the conclusion that he cannot have an insurable interest in the
property itself for the purpose of a policy on property risks. The fact that the
market does not offer such policies is neither here not [sic] there. What
matters is whether, if such a policy were effected, the assured would have a
sufficient relationship with the subject matter to give rise to an insurable
interest. In my judgment, he would.

Notes

In the third case presided over by Deputy Judge Colman (as he then
was), Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1991] 2
Lloyd’s Rep 288, which he referred to in NOW v DOL, there was no need
for any discussion on the law of insurable interest because, as the judge
had little doubt that the subcontractors (the plaintiffs), responsible for the
construction and the supply of equipment, had sufficient interest in the
whole contract to be entitled to be regarded as a co-assured. However, on
appeal,9 the court, on the evidence and construction of the policy, found
otherwise: as the subcontractors were not intended to have the benefit of
the insurance, they could not be considered as a co-assured of the policy
for builders’ risks subscribed by the main contractor.

THE ASSURED
It is of utmost importance to determine the persons who stand in ‘any legal
or equitable relationship to the adventure or to any insurable property at
risk therein,’ as stated in s 5(2). The Act recognises the shipowner, the
mortgagee and the insurer as obvious examples of persons who have legal
rights in the property and, thus, an insurable interest. Besides these
categories, there are other persons recognised by case law to have an
insurable interest, such as captors and agents who might accrue a benefit
from the preservation of the subject matter insured. All these people are the
‘assured’ under the policy, and will be entitled to be indemnified should they
sustain a loss.

Owner of a ship

The owner of a ship is, of course, entitled to insure her for her full value. He
is thus allowed to recover for any loss or damage to his ship,
notwithstanding that a third party may have agreed to indemnify him for the
loss.10 The difficulty sometimes arises in ascertaining who, at any given
time, the true owner of the vessel is, especially when there is a sale, and
property changes hands. The following case is an example of a dispute
arising as to the ownership of the vessel with regard to passing of property.
Piper v Royal Exchange Assurance (1932) 44 LlL Rep 103

The assured bought a yacht in Norway ‘as she lies’. The yacht was to be delivered
to England and was, until her arrival, at the risk of the seller. On the voyage to
England, the vessel sustained some damage. The buyer claimed upon the policy,
and was indemnified for the loss.
The court ruled that, since the risk was on the seller during the voyage, the buyer
had no insurable interest at the time of loss. The underwriters, therefore, having
paid under a mistake of fact, were entitled to recoup the amount they had paid to
the assured buyer.

Roche J: [p 116] …Now, in those circumstances the underwriters say: ‘We
insured the plaintiff through the broker on the basis that he had an interest,
and we paid him on the basis that he had an interest, and he had not, and in
those circumstances we claim the recovery back of the sum which we paid in
settlement of this particular average claim.’
In my judgment, the underwriters are so entitled. The matter depends now
as regards interest upon the Marine Insurance Act 1906, and ss 5 and 6 deal
with the question of interest, with its attachment; and there are some other
sections following upon that which deal with other topics of interest. Section
 26 deals with the designation of the subject matter. I need not read these
sections; they have been read and re-read in the course of the argument.
Suffice it to say that, in my judgment, the plaintiff had no interest here. It is
unnecessary to decide, but it is probable that he had an interest, not in the ship
itself, but in its arrival, which might have been insured and constituted an
insurable contingent interest, but I think it ought to have been so described,
and this is just one of those matters of interest which requires to be defined,
because it is necessary still to define the subject matter insured, although it is
not necessary to specify the nature and extent of the injuries of the subject
matter insured.

A person with power of attorney

In Moonacre [1992] 2 Lloyd’s Rep 501, the facts of which have been cited

earlier,11 Deputy Judge Colman QC had to consider the point of whether a
person who has been given power of attorney to sail and manage a yacht
had an insurable interest in her. The judge dealt with the issue in the
following manner.

Deputy Judge Colman QC: [p 512] …The insurers pray this case
[referring to Macaura v Northern Assurance Co Ltd]12 in aid as an
illustration of the proposition that even if the assured is a bailee of the
goods, if he has no responsibility for them or beneficial right in respect
of them he has no insurable interest in them. They contend that Mr
Sharp was a mere licensee of the vessel and not even a bailee—
having no responsibility for its safety, because such a duty would be
inconsistent with his purpose of insulating himself as completely as
possible from the vessel for tax purposes… Let it be assumed that Mr
Sharp was indeed no more than a licensee and further that he was
subject to no duty of care in relation to the vessel, can it be said that
he is in no materially different relation to the vessel from that of Mr
Macaura to the timber? Such a submission entirely overlooks the fact
that by the two powers of attorney Roarer had conferred on Mr Sharp
authority to enjoy the use of the vessel exclusively for his own
purposes. That was a valuable benefit which would be lost if the
vessel were lost. The legal relation in which he stood to the vessel
was that, for as long as the powers of attorney remained, he was
entitled to use it for his own purposes and to exercise over it such
control as he saw fit. His powers were such that he could even
abandon it to the insurers in the event of a constructive total loss; a
relation to the goods sometimes considered decisive on the issue of
title to sue…
…In my judgment, Mr Sharp, by reason of the powers of attorney, stood
in a legal relationship to the vessel in consequence of which he would benefit
from the preservation of the vessel and, if the vessel were lost or damaged, he
would suffer loss of a valuable benefit. I therefore hold that he had an
insurable interest in the vessel.
[p 513] …Although, no doubt, the authority given to a master in respect of
his ship and the terms on which the owners employ him will not normally
give rise to the passing of possession, that is not impossible. In any event, the
terms on which Mr Sharp was appointed skipper and the powers vested in
him are so fundamentally different from the terms normally to be expected
that Mr Sharp stands in a quite different relationship to his vessel from that
relationship normally found in the articles of employment of a master.
Moreover, as I have already held, the existence of an insurable interest does
not depend in this case on whether there was a relationship of bailment. If,
however, this is not right, I consider that, given the wide terms of the powers
of attorney, the master was given such degree of control as to amount to the
passing of possession of the vessel in this case and was accordingly its bailee
…That said, the terms of the bailment in this case are such that they conferred
on the bailee a valuable benefit and the risk of loss of that benefit could quite
properly found an insurable interest in the vessel itself.
I express no concluded view on the question whether, having regard to the
terms on which Mr Sharp controlled the vessel, he was under any personal
duty to Roarer to exercise reasonable care over the vessel and her operation.
If there were such a duty of care, clearly, Mr Sharp could insure the vessel
against marine perils and if the vessel were lost and even though he had
incurred no such liability, he would be entitled as against the insurers to
recover the value of the vessel and hold it as trustee for Roarer…My
provisional view is that Mr Sharp did owe a duty to Roarer to exercise
reasonable care over the management and navigation of the vessel, and that
on these grounds alone, he would have had an insurable interest in her.
…If, as I have held, Mr Sharp had an insurable interest in the
vessel, he could sue on the policy, and it is unnecessary to decide
whether Roarer was interested in the policy and could sue on it.
However, in case this matter goes further, I shall set out my
conclusions on this issue.
[p 514] …Did Mr Sharp have the authority of Roarer to act as its agent to
enter into a contract of insurance? I am unable to accept the plaintiffs’
submissions on this point…The express authority which Roarer gave to Mr
 Sharp to purchase the vessel and register it in the company’s name as
evidenced by his solicitors’ attendance…gave rise to no such implication of
authority. Those documents evidence express authority confined to two
functions only—purchase and registration. There is no basis upon which it
can be reasonably suggested that Mr Sharp was additionally, by implication,
thereby authorised to create privity of contract between the company and
insurers.
[p 515] Can Roarer rely on ratification of the contract? In my judgment,
the plaintiffs were not entitled to ratify the contract. The policy entered into
by Mr Sharp was not a contract in the name of Roarer, but in his own name. It
was not even a policy entered into in his own name and for the benefit of an
additional class of persons ‘for their respective rights and interests’ …Where
the agent has not purported to create privity of contract, he has not done any
act for which he lacked authority. His uncommunicated intention to bind the
principal is irrelevant. There was, therefore, nothing capable of ratification in
the present case. Once the proposal had been made in the name of Mr Sharp
alone and the policy issued only in his name, the parties to the contract were
fixed and confined to those in whose names the contract was expressed to be
made, namely, Mr Sharp and the insurers.
…In my judgment, Roarer was neither a party to the initial contract of
insurance…nor to the renewal policy…and accordingly, has no title to sue in
respect of the loss of Moonacre.

Notes

Deputy Judge Colman QC also considered the position of a bailee or a

licensee with respect to insurable interest. In support of the proposition that
the mere existence of a bailment may not be enough to give rise to an
insurable interest, he referred to the case of Macaura v Northern
Assurance Company Ltd (1925) 21 LlL Rep, HL.13 That case involved the
sale of timber to a company of which the assured was the sole shareholder,
and also a substantial creditor. When the timber was destroyed by fire, the
assured claimed under the policy. The House of Lords ruled, inter alia, that
he may have been the bailee of the timber, but he had no liability and owed
no duty to the company in respect of the safe custody of the timber. The
assured’s relation and responsibility was to the company alone, and not to
the company’s property.
In the view of Deputy Judge Colman QC, the test appears to be whether
the assured has any beneficial rights in the subject matter insured. And, as
the assured had rights and obligations in Moonacre, he was held to have
an insurable interest in her. Regarding the position of a licensee, Deputy
Judge Colman did not find it necessary to elaborate if and when a licensee
might have an insurable interest, as the assured, Mr Sharp, had two
powers of attorney, which was sufficient to establish a legal relationship
with Moonacre.

Owner of goods

An owner of goods will naturally have an insurable interest in his goods. However,
property might change during the currency of the policy, and in such an event it is
not always easy to pinpoint who the owner of the goods is at the time of loss. A
great deal hinges upon the terms of the particular contract of sale which determines
the time of the passing of property.
Re National Benefit Assurance Co Ltd, Application of HL Sthyr (1933) 45 LlL
Rep 147

A claim was made by the seller, with respect to the loss of goods, upon a policy of
marine insurance which purported to insure goods shipped from the UK to Russia.
The insurers declined payment on the ground, inter alia, that the seller did not have
an interest in the goods, as he had already consigned them to a Mr Vitouchnovsky,
and thus had parted with the property in the goods.
The court ruled that the seller did, in fact, have an insurable interest, as the sale
was not an outright sale, but conditional on the arrival of the goods.

Maugham J: [p 151] …Then remains the more serious question as to

whether there was not an out and out sale to Mr Vitouchnovsky and the
present claimant is unable to make a valid claim. In that matter, there is this
difficulty, that all the documents which were in existence at the time, or
practically all of them, have been destroyed and the records of the Russo-
Scandinavian Bank have been taken over by the People’s Bank and there is
some difficulty in ascertaining the facts…the sale was conditional on the
goods reaching Rostoff-on-Don. I think that, taking into consideration what
took place when the State Bank took possession, I should be quite wrong in
coming to the conclusion that the property passed before the goods reached
Rostoff-on-Don. Accordingly, although it is a serious point, I must come to
the conclusion which is consistent with my view of the business probabilities
of the time, that the goods were not sold outright to Mr Vitouchnovsky and
that the consignors were entitled to a claim on the goods.

Contingent and defeasible interests in goods

By virtue of s 7, a contingent and defeasible interest are insurable.14 In
terms of insurance of goods, these words simply mean that the interest is
not ‘fixed’ or, in a manner of speech, stable, in the sense that it does not
remain with one person throughout the policy, and may revert from the
buyer to the seller and vice versa because of certain events. For instance,
whilst property may have passed to the buyer, he may choose to reject the
goods, in which case the property and interest in the goods will revert to the
seller. Likewise, if the seller does not get paid, he can recall the property in
the goods and thus ‘defeat’ the interest of the buyer. In this sense, the
interests of both buyer and seller are dependent on the happening of
certain contingencies.
Anderson v Morice (1876) 3 Asp MLC 290, HL

In a contract of sale on the terms ‘bought for account of A, of B and Co, the
cargo of new crop Rangoon rice per Sunbeam’, the buyer insured the rice
‘at and from’ Rangoon to the UK, ‘as interest may appear’. The ship
proceeded to Rangoon and, after the greater part of the rice had been
shipped, she suddenly sank and the rice already shipped was lost. The
buyer sought to recover under the policy.
The House of Lords ruled that the buyer had no insurable interest, as the
rice was not at his risk at the time of the loss.

Lord Chelmsford: [p 291] …The question to be determined upon this

appeal is one of some difficulty, and it has given rise to a great
diversity of judicial opinion. It may be thus shortly stated: whether the
appellant, under a contract for the purchase of cargo of rice to be
shipped on board a vessel called Sunbeam, had any property in the
rice, or had incurred any risk in respect of it so as to give him an
insurable interest at the time of the total loss of the vessel and cargo.
Having regard to the terms of the contract for the purchase of the
rice, it is clear, to my mind, that if the intention of the parties is to be
collected from that document alone, no interest in the rice passed to
the buyers till the cargo was completed, for payment was to be made
only when the loading was finished…
…But it seems to me clear that, unless a change was produced in
the rights and liabilities of the plaintiffs under the contract by their
undertaking the insurance, they could have had no interest in the rice
until a complete cargo had been shipped. But, although this was their
position in relation to the contract itself, they had a contingent benefit
which might accrue to them from the completion of the cargo on
 board Sunbeam, and its safe delivery. This contingent benefit was one
on expected profits, and, although it would not be protected by an
insurance on the rice (Lucena v Craufurd (1806) 2 B&P (NR) 269), yet
the plaintiffs having that contingent interest in the safety of the cargo,
might not be indisposed to take upon themselves an insurance against
its loss, more especially as they would have an interest in the rice
itself at Rangoon as soon as the cargo should be completed. The
question is, did this insurance throw the risk of the loss of the rice
upon them?
[p 292] …Did they, by undertaking it, impliedly agree with the vendors
that, if the rice was destroyed after any part had been shipped on board e
Sunbeam, the loss should be theirs? …If this was really their undertaking,
every bag of rice shipped on board Sunbeam was at their risk, and the loss of
it must have fallen upon them. But the Court of Common Pleas held that, as
the plaintiffs would not, if the ship had sailed and arrived with what was on
board of her when she sank, have been obliged to accept what was on board,
they were not bound to pay for the rice which was on board and lost when the
ship sank; from which it would seem to follow that the plaintiffs were not
exposed to any risk of loss before a complete cargo had been shipped on
board Sunbeam.
…There being, therefore, conflicting evidence of intention as to the
interest in the rice passing to the purchasers or remaining in the vendors, the
effect of the written contract being that the interest was to continue in the
vendors until the completion of the cargo, and the consent of the purchasers
to insure not shifting the property during the loading and before the cargo was
complete, and it being at the utmost an indication of intention to assume the
risk, I think your Lordships should not look out of the contract, but determine
the rights and the liabilities of the parties by it alone. It was not disputed that,
by the terms of the contract, the plaintiffs were not bound to take less than a
complete cargo of rice, and that they had an option either to accept or reject a
part cargo. If they had exercised this option by accepting what was on board
before Sunbeam sank as a fulfilment of the contract on the part of the
vendors, they would have had an insurable interest in the rice at the time of
the loss.
Inglis v Stock (1885) App Cas 263, HL

By two contracts, Drake and Co sold to one Beloe and to the respondent
(plaintiff below) respectively 200 tons (or 2,000 bags) each of sugar to be
shipped FOB Hamburg, payment in cash in London on exchange for bills of
lading. By a separate contract, Beloe resold his 200 tons of sugar to the
respondent, who then took up a floating policy upon ‘any kind of goods and
merchandises’, and duly declared his interest in respect of this cargo. To
fulfil these contracts of sale, 390 tons (10 tons short) were shipped in bags
on board City of Dublin. The ship sailed from Hamburg for Bristol and was
lost. After receiving news of the loss, Drake and Co allocated 200 tons to
Beloe’s contract and 190 tons to the respondent’s contract. The issue
before the court was whether the respondent had, at the time of the loss,
an insurable interest in the 390 tons of sugar.
The House of Lords ruled that the sales being ‘FOB Hamburg’, the sugar was,
after shipment, at the risk of the respondent; he, therefore, had an insurable interest
in the sugar and the underwriter was liable for the loss.

Earl of Selborne LC: [p 266] …The quantity actually put on board City of

Dublin at Hamburg was only 3,900 bags, or 390 tons. As to this, I think it is
enough to say that, if the plaintiff would have had an insurable interest in
4,000 bags, under the circumstances of the case, he had, in my opinion, such
an interest though the quantity was short by 10 tons.
…But no particular bags were then set apart or marked as applicable to the
one contract more than the other; it was thought sufficient by Drake and Co,
or their agents, to leave this to be done when the bills of lading came forward.
[p 268] …The goods were, by the act of the vendors, separated from the
bulk of all other goods belonging to them; they were shipped ‘free on board’
in what (for that purpose) was the purchaser’s ship, under two contracts so to
deliver them; in both which contracts…the plaintiff was then…solely
interested. I cannot infer, from any part of the evidence, that, in so shipping
them indiscriminately, the vendors intended to break, instead of fulfilling,
their contract, and to take upon themselves (contrary to those contracts) the
subsequent risk of loss…
Lord Blackburn: [p 274] …I am quite unable to perceive why an
undivided interest in a parcel of goods on board a ship may not be described
as an interest in goods just as much as if it were an interest in every portion of
the goods. No authority was cited in order to show that it was not so, and I
can see no reason for it. Then, that being so, of course it follows that there is
no defence at all, and this is my opinion.
Colonial Insurance Company of New Zealand v Adelaide Marine Insurance
Company (1886) 12 AC 128, PC

Pursuant to a contract of sale, a cargo of wheat was to be shipped from New

Zealand to England. The buyer took out an insurance policy providing cover for
‘wheat cargo now on board or to be shipped’ in the ship Duke of Sutherland. After
commencement of loading, but before the whole cargo was loaded, both ship and
cargo were lost by perils of the sea. On an action by the buyers upon the policy, the
insurers contended that the buyers did not, at the time of loss, have an insurable
interest on the wheat insured.
The court ruled that the buyers’ risks commenced as and when any portion of the
cargo of wheat was loaded on board.

Sir Barnes Peacock: [p 136] …In Anderson v Morice…Anderson

agreed…to purchase the cargo of new crop Rangoon rice per
Sunbeam…and freight, expected to be March shipment, payment by
seller’s draft on purchaser at six months’ sight with documents
attached. The cargo to be purchased in that case was an entire thing,
and was not in existence at the time when the contract was entered
into, and would not be in existence until the whole cargo should be put
on board.
In the present case, the vendors did not sell a particular cargo on board a
ship chartered by them, but merely offered to supply a cargo of wheat
for Duke of Sutherland…on board at Timaru. No time or mode was fixed for
payment, and nothing was said as to the place to which the cargo, when
supplied and put on board, was to be carried, or to the effect that the sellers
were to have anything to do with bills of lading or other shipping documents.
The purchasers accepted the offer, they themselves being the charterers
of Duke of Sutherland, whereas in Anderson v Morice…the firm who agreed
to sell the cargo of rice by Sunbeam were themselves the charterers of that
vessel, and were to receive freight for the carriage of the rice, such freight
being included in the purchase money. In putting the rice on
board Sunbeam the seller were not delivering it to Anderson, but were putting
it on board a vessel, of which they were the charterers, for the purpose of
completing the cargo which they had agreed to sell. The master
of Sunbeam received it on their account, and not on account of the
purchasers. The purchasers’ right was to depend on the shipping documents,
which were to be under the direction of the sellers. In the present case, in
putting the wheat on board Duke of Sutherland