‘Insurable interest’ cannot be viewed narrowly
APERSON is said to have an insurable interest in something when loss or damage to that thing would cause the person to suffer financial or some other kind of loss.
So it was that in the recent case of Lorcom Thirteen (Pty) Ltd v Zurich Insurance Company South Africa, an interesting factual scenario gave the Western Cape High Court an opportunity to assess the correct approach to the question of “insurable interest” under South African law.
The case concerned the mfv Buccaneer, a fishing vessel lost at sea in 2008. Underwriters repudiated the claim under the policy for lack of an insurable interest.
The focal point of the repudiation was that the insured, Lorcom, had no direct ownership interest in the subject matter. At the time of the loss, the vessel was owned by Gansbaai Fishing Wholesalers (GFW), a wholly-owned subsidiary of Lorcom.
A further relevant feature of the case was that Lorcom was in the process of being sold at the time of the loss to a third party, subject to the condition that when the final instalment had been paid, ownership of the vessel would be transferred out of GFW into the name of Lorcom. As a result, there was an expectation that Lorcom would become the registered owner at some point in the future.
Against this background, Lorcom asserted that its insurable interest was premised on four points. It was the sole shareholder of the company which owned the vessel. It was to be vested with ownership of the vessel at a later date in terms of the sale agreement. It had the right of use of the vessel at the material time and, finally, it held the fishing permit for the vessel.
The policy covered hull and machinery, war and liability and was written subject to the Institute Fishing Vessel Clauses. Moreover, the policy was subject to South African law, which prompted the judge to delve into the origins of insurance law in the jurisdiction. Until 1977, the Cape and Orange Free State provinces in SA applied English statutory law as to questions of insurable interest.
At that time, the concept of insurable interest was a firm feature of English insurance statutes, such as the Marine Insurance Act, which influenced the direction taken by the South African courts on the matter.
From 1977, the law to be applied in the republic as a whole was RomanDutch law. The judge remarked that it would be erroneous to assume, therefore, that SA inherited a body of common law derived from English insurance law.
Consequently, the proper context for considering the question of insurable interest in SA is twofold. Under the common law, an insurance contract which constitutes a gambling transac- tion is not illegal but is nevertheless unenforceable. Further, unlike in England, there are no South African statutes which lay down the need for a so-called insurable interest.
The conclusion reached by the judge was that it is questionable whether or not there is a self-standing requirement that the insured must have an “insurable interest” in the asset. He preferred the view that insurable interest is an element of a broader inquiry into whether the insured’s interest in taking out the policy is an acceptable one which removes the contract from the ambit of gambling.
Two important principles emerge from the case.
The first is that South African cases on the matter show that the courts have often approached the question of insurable interest quite liberally so as to enable the insured to recover what the policy promised.
The second is that the judge was prepared to take a flexible approach to the question of shareholding in the asset-owning entity, which is in contrast to the conventional English law approach laid down by the House of Lords in Macaura v Northern Assurance Co Ltd & Others which held that a shareholder, even a 100% shareholder, does not have an insurable interest in the assets of the company.
On the facts, the court found that Lorcom’s 100% shareholding in GFW, taken together with its right of use of the vessel and its expectancy of becoming owner, was sufficient interest to render enforceable an insurance contract providing for payment of the loss of the market value of the vessel.
This case sends a warning to insurers writing business in SA not to assume that “insurable interest” is a self-standing requirement of South African insurance law and to be wary of adopting an overly strict or technical approach when taking a view on whether or not a policy is enforceable in any given case.