Insurable interest
Produced in partnership with Dr Franziska Arnold-Dwyer of Centre for Commercial Law Studies at Queen Mary University of LondonThe following Insurance & Reinsurance practice note produced in partnership with Dr Franziska Arnold-Dwyer of Centre for Commercial Law Studies at Queen Mary University of London provides comprehensive and up to date legal information covering:
- Insurable interest
- What is insurable interest?
- Insurable interest—marine insurance
- Legal basis
- Definition
- Timing
- Consequences of absence of insurable interest
- Insurable interest—property insurance
- Legal basis
- Definition More...
This Practice Note considers insurable interest, including insurable interest in construction and liability insurance. It also considers insurable interest in subrogation, co-insurance and double insurance and the Insurable Interest Bill.
What is insurable interest?
‘Insurable interest’ refers to a doctrine of insurance contract law that requires the insured to have a relationship with the insured subject-matter that is recognised by law. Broadly speaking, only persons who have some relation to the subject-matter of the insurance contract, by reason of which they would be prejudiced by its loss, or may incur liability in respect thereof, can insure that subject-matter. Conversely, a person who has no such relationship cannot take out insurance on that subject-matter. The burden rests on the insured to prove an insurable interest exists.
The historic rationales for requiring an insurable interest are that:
- •
it is characteristic of an insurable interest that distinguishes an insurance contract from wagering contracts (the ‘anti-wagering rationale’)
- •
an insurable interest is thought to reduce the moral hazard posed by the insured taking deliberate steps to destroy the insured subject-matter to benefit from a claims payment (the ‘moral hazard rationale’) and
- •
the doctrine of insurable interest supports the indemnity principle which rests upon the policy that claims payments should be limited to an indemnity for the insured’s loss
The anti-wagering rationale remains of great significance in the context of differentiating between insurance contracts
Access this content for free with a trial of LexisNexis and benefit from:
- Instant clarification on points of law
- Smart search
- Workflow tools
- 36 practice areas
Insurable interest is a financial stake in any person, event, or property that may incur a monetary loss. An entity or person is said to possess an insurable interest when the destruction, loss, theft, or damage of the property, person, or event could result in a monetary loss or another type of hardship for that entity or person. In most cases, insurance policies cannot be legally issued to a person or entity without an
insurable interest in the property, person, or event being insured. Persons or entities who will not experience a monetary loss or other hardship if the person, event, or property is damaged, lost, or destroyed are usually barred from purchasing insurance policies for that property. You need to be aware of insurable
interest whenever you are attempting to purchase insurance. For example, you can usually purchase homeowners insurance for a home that you own, because you would be financially damaged if the home were destroyed or damaged. However, you usually cannot purchase homeowner's insurance to cover a home that you rent, because you lack an insurable interest in that home. Insurable interest is a fundamental
concept that makes insurance policies possible. Insurable interest is an important component of insurance policies for several reasons: What is insurable interest?
Learn more about insurable interest
When do I need to be aware of insurable interest?
What is important to know about insurable interest?