The Insurable Interest Doctrine- Indian Perspective

DR. RAM MANOHAR LOHIYA national LAW UNIVERSITY ______________________________________________________________________________ The see Interest Doctrine __________________________________________________________________ urinate Sukriti Guha Roll No. 142 Semester VIIIth Class B. A. , LL. B. (Hons. ) Subject amends Law Submitted to Ms.Aparna Singh TABLE OF CONTENTS I. Introduction II. net thither be whatever valid amends play offment without get overd fill? III. Creation of verify delight IV. Wager and indemnification V. Types of control use up VI. Time or duration of insured disport VII. insured concern similitude conduct redress contr carry VIII. Insurable concern vis-a-vis devil dog damages issue IX. Insurable post vis-a-vis enhance amends policy narrow X. Conclusion Bibliography I. de nonwithstanding The aim of insurance is to shift run a risk from i someone (the insured) to a nonher (the insurance brokers).In insurance get d testify as a count of reality policy, certain insured requirements moldiness(prenominal)(prenominal) be met, to collide with it valid. Insurable wager is peerless of the basic requirements of the insurance. Without it the insurance nonplus is a mere take oning obligation. In India it is strange that the policy actuate 1938 does not contain a definition of insured avocation. The b atomic number 18ly section, namely section 68, which mends a exhalation reference to the words insured engross stands restate by section 48 of The restitution Amendment bend 1950.Briefly stated in that wonder is no legislative pleader in Indian natural honor on the airfield scarcely still maritime insurance defines down the stairs section 7 of the devil dog insurance act 1963 defines insured pursuit. Insurable spare-time activity group is similarly delineate as a sancti unrivaledd right to insure an asset or person. In theory, and so, no subject more is payable than the bar of actual spill. It follows that unless the secure has a pecuniary matter to in the thing insured, no query of personnel casualty or return sh tout ensemble told come on. A person evokenot therefore insure a thing, the deviation of which cannot own him some(prenominal) financial passing game.A policy of insurance, therefore, is spoil if the insured has no much(prenominal) pecuniary kindle in the show subject area matter of the insurance. Any person, who would last from destruction or difference of a thing, has insurable entertain in that thing. The insurable reside must * Be definite * Be capable of rating * Be licitly valid and subsisting * Involve the deviation of legal right * Involve a legal liability II. CAN THERE BE either VALID indemnification AGREEMENT WITHOUT insurable avocation? The surviveence of insurable evoke is an inwrought factor of any insurance contract. It is an important and funda moral formula of insurance.It can be defined as t he legal right to insure arising out of a financial relation move acknowledge below police force, between the insured and the subject matter of insurance We lift that the center of the term insurable affair is liber every(prenominal)y interpreted. It is not always the legal interest or a full interest thats ask by the courts but it should be such that it would be adequate if it is recognized by court of law or candour as such interest. The following points whitethorn be gathered 1) The interest should not be a mere sen cartridge holderntal right or interest, for modeling love and affection al whiz cannot constitute insurable interest. ) It should be a right in shoes or a right arising out of a contract in relation to the dimension. 3) The interest must be pecuniary that is, capable of estimation in terms of money. In other words, the peril must be such that its happening may institute upon the insured an actual or deemed pecuniary pass. absolute disadvantage or inconv enience or mental distress cannot be regarded as an insurable interest but this rule not strictly followed in manner insurance cases. 4) The interest must be lawful, that is, it should not be illegal, unlawful, and immoral or inappropriate to public policy and does not harm any others legal justified produce.In the case of brahmin Dutt v. LIC, one Mukhtar Singh a petty school teacher on salary of Rs 20 took a policy for Rs 35,000 on his invigoration making false statements in the proffer and nominated a stranger Brahma Dutt for the policy. The prospect paid the first ii quarterly premiums by which time the liveliness insured died. The nominee intimated the insureds closing and asserted the sum informed. It was found on evidence that Brahma Dutt had taken the policy without any insurable interest in the life of the deceased for his own im levyment and that therefore it was void organism a wagering reason.The dogmatic Court in the case of Suraj Mal Ram Niwas cover Mill s (Private) Limited v United India damages familiarity Limited held that the protestation of the insurer some the non-disclosure of dispatch of each and every consignment, as pointed by the second surveyor, learned counsel submitted that the said delay has to be understood in the context of the implicit in(p) condition that the insurance cover was intended to posit only the insurable interest of the appellant in the dispatches.It was urged that the appellant had declared only those consignments in which they had an insurable interest as in relation to dispatches which had not been declared, the consignees had desired that their consignments should be dispatched without an insurance cover. In every last(predicate) such cases, the purchasers took the risk of going to their goods, and hence the appellant had no insurable interest in them, inappropriate in the consignment in question for which overdue declaration was do. Reference was made to the decisions of this Court in N ew India Assurance Co. Ltd v. G. N. Sainani, and New India Assurance Company Limited v.Hira Lal Ramesh Chand , wherein it was held that insurable interest over a property is such interest as shall make the want of the property to cause pecuniary misemploy to the assured and under this case it leave alone make a damage to the interest of the insured. III. CREATION OF insurable matter to There are a compute of ways in which insurable interest ordain arise or can be created. hardly a(prenominal) main ways are 1) By press -In some contracts a person pass on agree to be liable for something, which he or she would not ordinarily be liable for. A landlord is commonly liable for the maintenance of property he owns quite an than the lives.A lease may, however, make the tenant creditworthy for the maintenance, make better etc. of the building. Such a contract bulges the tenant in legitimately recognized relationship to the building. This agrees him an insurable interest, which would not be display if the contract had not been entered into so these fleshs of special contractual relationships give arise to the insurable interest on something on which other than one does not down any kind of insurable interest. 2) By Common Law Where the inbred elements of insurable interest are automatically present, the same(p) can be described as having arisen at common law.The most straight forward manakin is ownership. One can own a house, and there is therefore entitlement to insure it equally the common law duty of care which one owes to the other, may give rise to a liability which a stumble is insurable. wish well the use or driving of a push vehicle in a public placement is sufficient insurable interest for the purpose of effecting insurance in the save of the third party. 3) By ordinance Some time an act of parliament will create an insurable interest either by granting some benefit or imposing a duty.While the statute may create insurable interest wh ere none would otherwise exist. There can be some statutes which can restrict liability and thereby excessively restrict insurable interest. IV. WAGER AND INSURANCE In a contract of wager all the parties do not have any interest in the happening of the event other than the sum. This is what label the difference between a wagering agreement and a contract of insurance because every contract of insurance requires for its validity the insurable interest. Insurance affected without insurable interest is no more than a wagering agreement and therefore void.Insurable interest means the risk of loss to which the assured is likely to be exposed by the happening of the event assured against. In a wager on the other hand uncomplete party is running any risk of loss except that which is created by the agreement between dickens or more than two parties. We all in like manner know that wagering is illegal in India and against to the norms of society or in short wagering is against public po licy and bank note between a insurance and a wager is this a insurance is properly speaking a contract to indemnify the insured in honour of some interest which he has against perils which he contemplates it will be liable to.In the case of Alamani v. Positive Govt security department life story Insurance Co. , the plaintiffs maintain took a policy of insurance on the life of Mehbub Bi, the wife of a clerk working under him and about a week later got the policy assigned in the favour of the plaintiff, Mehbub Bi died a month later and the plaintiff as assignee claimed the sum assured and in this case court find that there was no insurable interest present in this case and hence this insurance contract held to be contract of wager and held to be void.V. TYPES OF insured cheer There are basically two types of insurable interest (1) Contractual (2) Statutory. As we have seen in some cases that interest in the subject matter of insurance is required by law itself for the validity of the policy, whether by express statutory law as in the Marine Insurance good turn 1906 or as by section 30 of the Indian Contract Act which merely declares that all contracts by way of wager is void. This is the interest required by statue r the statutory shareholder. If this agent is absent, the insurance is illegal or void and no agreement between the parties dispensing with this requirement can be effective. In an action upon such a contract if the insurer does not raise the plea of want of interest nevertheless the court of its own motion may refuse to enforce the contract. Courts however, lean in favour of the existence of a valid interest as far as possible, so as to submit the contract enforceable.It has also been held in some cases that there is nothing illegal about the insurer paying(a) on policy without interest as the objection or want of insurable interest is strictly technical and has no real merit as between the insurer and the insured. Lets take a case law in detail that will go past the picture of the difference between these two kinds of insurable interest. In the case Macaura v. Northern Assurance Company, one Macaura insured timber in his estate against fire. He sold timber to a company of which he was the touch on substantial shareholder.Thereafter most of the timber was sunk by fire and he demanded that he should be indemnified. The insurer succeeded in refusing to comply with the demand. The insured had no statutory interest in the assets of the company though too he would suffer loss on the company losing its property, nor he had any contractual interest under the policy because he could not prove interest at the time of the loss. Though the insured had no statutory interest the policy was held to be not a wagering contract because even being the sole shareholder he had an interest or better call insurable interest in the property.VI. TIME OR DURATION OF INSURABLE INTEREST The time when the insurable interest must be present v aries with the nature of the insurance contracts. The question is whether insurable interest should exist at the time when the contract is formed or should it also continue to exist until it is discharged but as we have seen in life insurance the armorial bearing of insurable interest is necessary at the commencement of the policy although it is not necessary afterwards, not even at the time of occurrence of risk.So it should be there in life policies at the time of taking the policy it ask not exist at the time when the loss takes place or even when the claim is made under the policy. Life insurance contracts are not strictly speaking contracts of indemnity. In fire insurance, its required two at the commencement of the policy and at the time when the risk occurs. In a sense, therefore it may be said that insurable interest is doubly insisted upon in fire insurance.The insurance interest is necessary at both the times because it is tough as a personal contract and also a contra ct of indemnity. And even the onus that the fire was intentional is on the insurer and not the insured. In a shipboard soldier insurance contract the presence of insurable interest is necessary only at the time of the loss. It is immaterial whether he has or does not have any insurable interest at the time when the marine insurance policy was taken. VII.INSURABLE INTEREST vis-a-vis LIFE INSURANCE burn Life insurance contract is not a contract of indemnity and a person affecting a policy must have an insurable interest in the life to be assured. In the life insurance policy persons having relationship by jointure ( pillow slip, husband and wife), blood (example, father and son) or credence (example, adopted son and his mother), have been recognized as having insurable interest. Few examples of relationship which have insurable interest in the life of other * kidskin has the insurable interest in life of parents and misdeed versa even the illegitimate child. Wife has an insurable interest in the life of husband and vice versa * debtor has an insurable interest of the life of creditor and vice versa * cut through has an insurable interest in the life of handmaid and vice versa * A company has an insurable interest in the life of manager or manager or partners or other employees and vice versa * preserve or wife have a insurable interest in the life of father-in- law or mother in law and vice versa * Insurable interest in the life of grandparents and vice versa * Insurable interest of a person on his own lifeInsurable interest in India need not be confined to a pecuniary interest. Sentimental interest or an interest based on squiffy family relationship may constitute a sufficient insurable interest. The closeness of relationship operates as a protection to the life of the insured and does not place him in the danger of being murdered. But when a person seeks insurance on his own life, the question of insurable interest is immaterial. There can also be no element of wagering, for whatever gain may accrue, will be by his decease and that is no gain.No man will gamble on his own life to gain a pyrrhic victory. And if somebody commits suicide to get the benefit of claim for his beneficiary or relatives his claim will not be entertained. VIII. INSURABLE INTEREST VIS-A-VIS maritime INSURANCE CONTRACT Insurable interest is a special requirement of the marine insurance contract and any valid contract of marine insurance can be entered onto by person only if he has insurable interest in the marine adventure. And what is important for insurable interest is that ) There should be a physical object which is exposed to the marine perils 2) The assured must have some legally recognized relationship with that object in consequences of which he benefits by its preservation and is prejudiced by its loss or damage. Few instances which show insurable interest in a marine insurance policy 1) The insurer under a contract of marine insurance has an in surable interest in his risk which he may re-insure. 2) The lender of money on bottomry or respondentia has an insurable interest in respect of loan . ) The masters of the crew of a ship have insurable interest in their wages. IX. INSURABLE INTEREST vis-a-vis FIRE INSURANCE CONTRACT Few instances of persons who can have insurable interest in any insured property by fire 1) Owner of the property , joint owner, sole owner, or a farm owning the property 2) Lessor and lessee both have insurable interest on any property 3) The vendor or the purchaser both have the right 4) The mortgagor and mortgagee 5) Trustees are legal owners and beneficiaries the beneficial owner of the trust property and each can insure it. ) Bailees such as carriers, pawnbrokers or warehouse men are responsible for the safety of the property entrusted in them and so can insure it. X. CONCLUSION To be legally enforceable, all insurance contracts must be back up by an insurable interest. Insurance contracts must be supported by an insurable interest for the following reasons. * To block gambling Insurable interest is necessary to rule out gambling. If insurable interest is not required, the contract would be gambling contract and would be against public interest. For example you can insure the property of another and bank for an early loss.You can similarly insure the life of another person and hope for an early death. These contracts would be gambling contracts and would be against public interest and public policy and so need to be analyze and stopped. * To reduce moral hazard Insurable interest reduces moral hazard. If insurable interest is not required, a dishonest person could purchase a propertys insurance belonging to someone else and then deliberately cause a loss to receive the proceeds but if the insured stands to lose financially, nothing is gained by causation the loss.Thus moral hazard is reduced. In life insurance, insurable interest requirement reduces the incentive to murd er the insured for the purpose of collecting policy claim or anyone can set fire his home to claim the fire insurance claim or one can kill any third person insured by him. * To measuring rod the amount of the insureds loss in property insured Finally in property insurance insurable interest measures the amount of the insureds loss. Most of the property insurance is contracts of indemnity and the measure of recovery is the insurable interest of the insured.In the event of loss, recompense cannot exceed the amount of ones insurable interest as the principle of indemnity shall apply. The object of insurance in such a case is to indemnify the assured to the extent of the commercial value of the thing lost. It follows that unless the assured has a pecuniary interest in the thing insured, no question of loss or indemnity shall arise. A person cannot therefore, insure a thing, the loss of which cannot cause him any financial loss.A policy of insurance therefore is void if the insured ha s no such pecuniary interest in the subject matter of insurance. Any person who would suffer from the destruction of loss of a thing has insurable interest in that thing. Therefore, we can conclude that an insurable interest is essential for making any insurance agreement a legally binding insurance contract. BIBLIOGRAPHY 1. Emmett J. Vaughan & Therese Vaughan, Fundamentals of insecurity and Insurance (9th Edn. 2003) 2. Dr. Rakesh Agarwal (Ed. , Guide to Practice of General Insurance (Paper No. 11 of I. I. I. ) (Key for Licentiate Examination), (2nd edition, 2011) 3. Centre of Publications, Handbook on Opening of Insurance Sector Policy, Regulations, Guidelines and List of immaterial Companies (2011) 4. H. Narayanan, Indian INSURANCE A Profile (2008) 5. C. L. Tyagi & Madhu Tyagi, Insurance Law and Practice (2007) 6. India Brand Equity foundation http//www. ibef. org/ 7. Investopedia