In this claim by the assignees of the insured under a Policy of insurance, the Scottish Outer House of the Court of Session had to determine whether the insured had an insurable interest in the property destroyed. The Court’s decision is considered by Amanda Savage of 4 New Square.
The pursuer (Claimant) (“Comlex”) was the assignee of the rights of Ms Laura Ann Britton (“LB”) under a Complete Retailer Policy of insurance with the defenders (Defendant) (“Allianz”) (“the Policy”). Comlex sought an indemnity under the Buildings section of the Policy following a fire which destroyed a public house in Paisely (“the public house”). Allianz declined an indemnity, principally on the grounds that LB had no insurable interest in the public house.
Comlex, which was controlled by LB’s parents, owned and operated the public house. The public house had, since September 2009, been managed by LB. In March 2011, Comlex had ceased trading. LB intended to purchase the public house with the benefit of finance provided by Lancashire Mortgage Company (“Lancashire”). She formed a limited company, LCSC, to be the relevant trading entity to whom she would grant a licence. On 5 April 2011, at Lancashire’s insistence, LB entered into the Policy. LB was the named insured. The Policy provided cover for damage to buildings including by fire. Shortly thereafter, a liquidator was appointed for Comlex and there was a meeting between LB and the liquidator. There was a dispute of fact as to exactly what had been discussed, although was clear that they discussed the possibility of a purchase and the obtaining of insurance by LB.
By the time of the fire in February 2013, the licence had been transferred by Comlex to LCSC but the purchase of the property had not yet been purchased by LB. The policy had been renewed in April 2012 so was in force.
Lord Doherty reached the following factual findings. First, the liquidator had instructed Ms Britton to insure the premises pending the sale to her, while the premises were being used by LCSC. Secondly, the parties had assumed that the purchase would go through relatively quickly and smoothly. Thirdly, Ms Britton and the liquidator had entered into a binding agreement under which a licence to use the premises had been granted to her pending the completion of the sale. The analysis of the legal position was on the basis of those factual findings.
THE COURT DECISION
Lord Doherty reviewed the authorities on the meaning of insurable interest, starting with the so called “classic” definition of insurable interest given by Lawrence J in Lucena v Craufurd (1806) 2 Bos & Pul NR 269, namely: “To be interested in the preservation of a thing is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction” and the ‘narrower’ definition put forward by Lord Eldon in the same case, referring to: “… a right in the property, or a right derivable out of some contract about the property, which in either case may be lost on some contingency affecting the possession or enjoyment of the party”.
His Lordship then considered a number of other cases, including Macaura v Northern Assurance Co Ltd (1925) 21 Ll L Rep 333;  AC 619, Cowan v Jeffrey Associates 1998 SC 496 and Feasey v Sun Life Assurance Company of Canada  1 CLC 237. He concluded (following the approach adopted in Cowan, in particular) that a person could have an insurable interest if there was a close legal relationship between him and the property insured. There were two such relevant relationships in the present case. First, a person who was under a legal obligation to the owner to reinstate property following its damage or destruction had insurable interest. Secondly, a person under a legal obligation to the owner to insure property against damage or destruction had insurable interest, because failure to insure would expose that person to a claim for damages in the event of a loss. Both relationships were present here, such that there was an insurable interest.
The answer to the question posed by this particular case might seem relatively straightforward. It is, however, useful for its comprehensive review of the authorities in England and Scotland. It is also a reminder that legal or equitable ownership (the latter not being a recognised concept in Scottish law in any event) are not necessary ingredients of an insurable interest: what is required is some legal relationship between the insured and the property insured, by way of interest in, or obligation regarding, that property.
Note that the Law Commission has consulted extensively on the question of insurable interests, and published a draft Bill for consultation in April 2016. The final draft bill is due to be published imminently. The draft bill adopts, or is intended to adopt, a relatively permissive approach to insurable interest. At least in respect of what the Law Commission calls “life related” insurance (insurance relating to death, injury, ill health or incapacity of an individual) the concept of insurable interest will be wider than the current law. The proposals relating to non-life policies appear to mirror the current law.