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PARTIES TO THE CONTRACT-THE INSURED
In the preceding chapter it was explained that a fireinsurance policy is essentially a personal contract, and that to eliminate the moral hazard as much as possible, it is important that the insured should have an interest in the property which he wishes to insure. Fire-insurance policies are contracts for indemnity and not contracts for profit. Where the insured has no "insurable interest" in the property covered by the policy there can be no loss,"and hence no indemnity.
In life insurance, as contrasted with fire insurance, this principle of indemnity has not been clearly defined. Not only have the courts decided that a person has an insurable interest in his own life for any amount for which he may be willing to pay premiums, but as regards the insurable interest of blood relatives in the life of the insured, and in many states even as regards the interest of creditors, the tendency has been not to lay down hard and fast rules as to the amount of insurance that may be taken. In fact, most legal authorities do not regard life-insurance policies as contracts for indemnity, but view them as agreements for the payment of a definite sum "upon the happening of a certain event at an uncertain time in the future."
"Insurable interest," as applied to fire-insurance contracts, has been defined as "every interest in property or in relation thereto or liabilty in respect thereof, of such a nature that a contemplated peril may directly damnify the insured.''1 Every person who has such an insurable interest, in property has the right to insure the same under a fire or marine insurance policy. It is to be noted, however, that the definition is exceedingly broad in its scope, and that insurable interest does not necessarily imply ownership or possession of the property. Insurable interest may assume hundreds of forms, and may exist under very different conditions. Elliott, in his legal treatise on "The Law of Insurance, '' briefly summarizes the nature of the interest as follows: "The interest which may be insured must be neither illegal nor immoral. It may be either legal or equitable, but it is not necessary that the party should have either legal or equitable title to the property. The interest may be either conditional or contingent. . . . An insurable interest does not imply ownership of the property or even a right to its possession. A person may insure his interest in expected commissions, or, in what seems an extreme case, an expected catch of fish. But in all such cases an expectation of profit or benefit must arise out of some subject in which the party is actually interested at the time of the loss, and it is not enough that he only expects to be interested in such property." 2
The Time and Continuity of Insurable Interest.—The weight of early legal decisions is to the effect that a fireinsurance policy could only be supported by an insurable interest that existed both when the contract was made as well as at the time of the loss. In more recent years, however, the courts have shown a strong tendency to view the insurable interest supporting a fire policy as similar to that applying in life and marine insurance. In the last form of insurance it has always been the rule that an insurable interest, existing at some time during the risk and at the time of
1 Elliott on Insurance, p. 40.
2 Ibid., p. 44.
the loss, was sufficient to validate the policy, and that it was unnecessary to have the interest exist at the time the policy was written. The vicissitudes of marine ventures, especially where voyages are long and to remote countries, have made this ruling a necessity. Thus in marine underwriting it has always been a common practice to insure vessels and cargoes "lost or not lost,'' meaning that even though the property is lost when the policy is written, the company will indemnify the owner when information of the loss shall be obtained. Again, it may frequently be convenient for merchants, where long distances are involved and communication is difficult, to insure cargoes before it is definitely known that they have begun the voyage. Freight earnings in marine ventures are also insured against loss before they are earned.
A number of recent court decisions point to the fact that there never was any good reason for making a distinction between fire insurance and life and marine insurance as regards the necessity of insurable interest at the time of the inception of the policy. Thus in the case of Sun Insurance Office vs. Merz (64 N. J., p. 303), the court gives the following explanation: "This was formerly considered to be the rule with relation to fire policies, and was so declared both by text-writers and in decided cases, although a contrary view was always taken in construing life and marine policies. Why any such variance in construction existed, it is difficult to understand, for certainly if a contract to insure after-acquired property against fire is a wagering contract, and therefore void because against public policy, a contract to insure such property against marine risks, or a contract to insure the life of a person in favor of one who at the time of the taking out of the policy has no interest therein, are equally wagering contracts; and if such contracts are prohibited by public policy, should equally be considered void. But, although the earlier cases on fire inBurance laid down the rule enunciated by the Supreme Court, experience has taught that the necessities of business and the adequate protection of property require the same methods of insurance against loss by fire as have always existed with relation to losses by the perils of the sea. And reflection has led to the conclusion that contracts of insurance upon property in which the insured has no interest at the time of the issuance of the policy are not wagers if he acquires an interest during the life of the policy and retains it at the time when the loss occurs.''
The question that next suggests itself has reference to the continuity of the interest. Assuming that an insurable interest exists, either at or some time after the issuance of the policy, must this interest continue without a break until the time of the loss, in order to keep the policy in force, or may the interest cease for a time and then be restored without invalidating the insurance? The answer to this question is well presented by Elliott. "In those jurisdictions," he writes, "which hold that the interest need not exist at the time the policy is taken out, it is sufficient if it exists at some time during the risk and at the time of the loss. But policies now generally contain a provision forbidding a change of title or the alienation of the property under a penalty of forfeiture. This provision is effective, but in its absence the contract is merely suspended during the time the interest is gone, and revives to secure the new interest acquired before the loss." 1
Examples of Insurable Interest.—As already explained, insurable interest in property may assume a great variety of forms, not at all dependent upon ownership or possession; and it consequently follows that several parties may have such an interest in the same subject matter. Thus custodians and caretakers, such as administrators of estates,
1 Eliott on Insurance, p. 43.
assignees in insolvency, trustees, receivers, and contractors, have an insurable interest in the property entrusted to their care. The mortgagor has such an interest as the owner of the property, and the mortgagee an interest in the same property to the extent of the mortgage debt. The lessor and lessee have an insurable interest in the same property. The consignor and consignee of goods may both have an interest to protect, and the same is true of the vendor and vendee of property before the absolute transfer has been made. All persons, although possessing no ownership in the property, have an insurable interest therein if liable to the owners for the loss or destruction of the same. Transportation companies, warehousemen, and all parties similarly situated, may protect themselves against liability imposed by law or custom by insuring the property left within their care. And it has been decided by the courts that a railroad company has an insurable interest in the property of others, situated along its line, for which it is legally liable in case of destruction. Even where the interest is of such a contingent nature that circumstances may defeat the same, the courts have declared that this indefinite nature does not prevent the interest from being insurable.
In fact so broad has been the application of the theory of insurable interest to fire-insurance contracts that comparatively few instances are found where all the court cases agree that no insurable interest exists. In the case of parties to void contracts, trespassers, or persons interested in property which cannot be legally owned or operated, the courts with one accord have denied the existence of such an interest. But in many of the doubtful cases, as, for instance, where a remote possibility exists that a right in property may arise, which, however, may be destroyed by the occurrence of some event, or where a person has made voluntary advances, or is only a general creditor, there are found conflicting decisions, some of which concede the existence of an insurable