Chapter Three The Principle of Insurable Interest

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Chapter ThreeThe Principle of Insurable Interest
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Contents

• 1. The meaning of insurable interest
• 2. The significance of insurable interest
• 3. The application of insurable interest
• 4. When does insurable interest begin to exist?
• 5. Common features of insurable interest

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1. The meaning of insurable interest
the legal right to insure arising out of a
financial relationship, recognized at law,
between the insured and the subject matter of
insurance.
---CII textbook
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• an insurable interest refers to the interest
  which the applicant has in the subject matter of
  the insurance and is recognized by laws.
• The subject matter of the insurance refers to
  either to the property of the insured and related
  interests associated therewith, or to the life
  and body of the insured, which is the object of
  the insurance.
  ---Insurance Law

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2. The significance of insurable interest
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3. The application of insurable interest
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• Insurable interest in property insurance
• it often arises out of ownership where the
  insured is the owner of the subject matter of
  insurance.
• house-owner can insure his house
• A shopkeeper can insure his stock

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• Insurable interest in liability insurance
• a person has insurable interest to the extent of
  any potential legal liability he may incur by way
  of damages and other costs.

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4. When does insurable interest begin to exist?

• In marine insurance contract, the insured must be
  interested in the subject matter insured at the
  time of loss.
• Insurable interest in life insurance is only
  required at inception.

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5. Common features of insurable
interest

• 5.1 Insurers insurable interest
• Insurance companies have insurable interest in
  their liability to pay claims to insureds.
• This interest gives them the right to seek
  reinsurance.

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5.2 Insurable interest being
enforceable at law

• If a policy is taken out without insurable
  interest, it means the insurance is
  unenforceable.
• If it is a life insurance policy taken out as a
  gamble on someones life, such policy would be
  void and illegal.

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5.3 Insurable interest in possession

• Lawful possession of property normally has
  insurable interest if that possession is
  accompanied by responsibility.

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5.4 Financial valuation

• Generally speaking, the amount of insurable
  interest must be capable of financial valuation.

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5.5 Assignment of insurable interest

• Assignment of policy referring to transfer of
  rights can be carried out. But in the case of
  personal contracts, it requires the consent of
  the insurer.

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Case study
Example
1. A visitor came to Shanghai for
sightseeing. After he visited the Tower of
Eastern Pearl, he wanted to pay premium to insure
the Tower in order to protect the property. Do
you think the Insurance company agrees to accept
his offer?
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Case study

• 2. John and David are businessmen and friends
  in the same company. In July, 2000, John wanted
  make his own way. He resigned from his job and
  became a self-employed man. When he began to
  open his business, he was in great of need of
  circulating funds, so he asked David for help,
  promising to pay more interest higher than that
  of the bank and pay his money after one year on
  time. In order not to let David have worries,
  John mortgaged his Honda to him.

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• With the consent of John, David bought
  one-year motor vehicle insurance in his own name
  from the insurance company.
• Six months later, When John drove the car to
  work, an accident occurred, the car was
  overturned and damaged totally. He was seriously
  wounded. On hearing the bad news, David reported
  the case to the insurance company and made claims
  to it.
• Discuss Do you think the insurance company
  should pay the claims or not? Why?

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The End of Chapter 3 (????)
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