REFORMING INSURANCE LAW: - Law Commission

assured had suffered a loss. 411 More generally, the ALRC recommended the adoption of ss 16
and 17 of the Insurance Contracts Act 1984 for the marine market, thereby abolishing the
requirement for insurable interest at the outset and allowing the assured to recover if he could
prove that he had suffered loss (whether or not he possessed insurable interest). 412 As a necessary
consequence of this new approach, it was also recommended that the rule in s 51 of the Marine
Insurance Act 1906 (s 57 of the Australian 1909) Act prohibiting assignment of a marine policy
by an assured who had lost insurable interest, be repealed.
8.10 In the light of the Australian experience, it is suggested that the UK should move to a
similar approach. This is perhaps particularly urgent given the uncertainties created by the
Gambling Act 2005, s 335.
Policies covering other interests
8.11 Section 49 of the 1984 Act attempts to lay down clear rules for recovery under policies
which cover the interests of persons other than the assured and who are not named or identified
beneficiaries under the policy. 413 The approach adopted, 414 is that, in the event that the sum
insured exceeds the named assured’s actual interest, the insurers are required to pay the assured
to the value of his own interest 415 and must also pay any third party to the value of his interest
(subject of course to policy limits) as long as the third party has served written notice on the
insurers within three months of the loss. Insurers are free to negative the effect of s 49 by
specifying in the policy the interests which are covered, in which case the holder of any
uninsured interest will have no remedy. It is unclear from s 49 whether, in the case of fraudulent
destruction by one or other of the named assured or the third party, the rights of the other are
unaffected. 416 However, it is uncertain whether express provision on this matter is necessary in
English law, which has moved on significantly since 1984. The concept of “pervasive insurable
interest”, which allows an insured person to recover the full sum insured and to hold the balance
for the third party interests, is now well entrenched in English law, 417 although there are
411
ALRC 91, paras 11.36-11.40 notes the criticism of this outcome, in that a “lost or not lost” clause was not
designed for this purpose but dealt with the specific problem that in the days of poor communications the assured
might at the date of the policy be unaware of the condition or fate of goods purchased by him and located abroad.
However, paras 11.40–11.64 go on to highlight the difficulties faced by a CIF or FOB buyer where the goods are
damages prior to shipment and suggest various alternative means whereby insurance cover can be effected.
412
There was significant opposition to these proposals from the cargo insurance market, the main argument being
that the law at the moment allows the policy to be assigned with the goods so that the owner at any one time is the
insured person: by giving insurable interest to other persons could undermine international sales contracts and
relieve the seller from his obligations to the buyer. The ALRC regarded the argument as flawed, but felt it necessary
to make alternative and less extensive recommendations under which (ALRC 91, paras 11.91-11.103 under which: a
purchaser of goods would have insurable interest as long as he ultimately paid for them and the redundant provisions
relating to bottomry and respondentia would be repealed
413
Named and identified beneficiaries have direct enforcement rights under ss 48, 48AA and 48A of the 1984 Act:
see infra.
414
Following ALRC 20, paras 124-127.
415
This is not specified in the section, but is a necessary implication.
416
That was the common law rule in British Traders’ Insurance Co Ltd v Monson (1964) 111 CLR 86.
417
Waters v Monarch Fire and Life Assurance Co (1856) 5 E & B 870; Petrofina (UK) Ltd v Magnaload [1984] QB
127.
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