The Insurable Interest Doctrine: What is it?
And What Does It Mean?
Evan B. Sorensen, Esq.
Kenne J. Zielinski, Esq.
The Insurable Interest Doctrine | 1
The Insurable Interest Doctrine: What is it? And What Does It Mean?
While one cannot define an insurable interest with complete certainty or precision, in general it exists when the policy holder derives pecuniary benefit or advantage by the preservation or continued existence of the property or will sustain pecuniary loss from its destruction.1 In other words, the insurable interest doctrine requires a person or entity which holds an insurance policy to have some significant interest in the property insured by the policy.2 Traditionally, the insurable interest requirement has been very broadly read and interpreted with almost any interest being found to create an “insurable” interest. This article will explore the origins of the insurable interest doctrine following its migration from England to the United States, examine why the doctrine is important in the commercial coverage context, examine current trends and issues in determining the insurability of commercial interests, and finally discuss whether inter‐related but unnamed entities could potentially have an insurable interest.
Common Law and the Origins of the Insurable Interest Doctrine:
Insurance law has long required that policyholders possess an insurable interest in the property which they seek to insure.3 Essentially, the insurable interest requirement typically functions as a safeguard to an insurer allowing the insurer to justify nonpayment after a covered occurrence has taken place. If the insurer can successfully prove the insured lacked an insurable interest in the property, a court will hold the insurance contract is void on grounds of public policy. So one may ask, where did the insurable interest requirement originate? And on what grounds is an insurance contract void if an insured lacks an insurable interest?
Although the insurable interest doctrine has long been a commonplace in American law, its true origins date back to the 18th century in England. In 1746, the English Parliament outlawed gambling contracts on marine insurance.4 And subsequently in 1774, Parliament extended this gambling prohibition to life insurance contracts as well.5 Accordingly, the original purpose of the doctrine was Parliament’s attempt to curtail the use of insurance contracts as a vehicle to gamble on ships and lives. To achieve Parliament’s purpose, the Acts sought to void contracts which lacked an insurable interest.6 While the Acts of 1746 and 1774 prevented the use of insurance contracts as a means of wagering on ships and lives, the two laws fell short in 1
See, e.g., Delk v. Markel Am. Ins. Co., 81 P.3d 629, 636 (Okla. 2003). 2
While this article focuses on insurable interests in the property context, the breadth of the insurable interest doctrine extends well beyond the property arena. For example, the insurable interest doctrine thrives in the life insurance arena as well.
See, e.g., Connecticut Mut. Life Ins. Co. v. Schaefer, 94 U.S. 457 (1876). 4
Act of 1746, 19 Geo. 2, c. 37 § 1 (Eng.).
Act of 1774, 14 Geo. 3, c. 48, § 1 (Eng.).
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precisely defining an insurable interest—so the task was left to the King’s Bench to articulate.7 As such, English case law defined the contours of an insurable interest and spawned the debate as to whether an insurable interest must ...