Insurable Interest

AuthorDenis Boivin
Each year, Canadian municipalities condemn hundreds of buildings
for safety violations. Typically, the owners are f‌ined and are ordered
to promptly conduct repairs. In addition, the municipality can obtain
eviction and demolition orders when this remedial work is not done
and the violations pose a r isk of injury to the occupants. As sume that
three individuals (Andrée, Bruno, and Claude) live in a municipality
that is vigi lant in these matters. A ssume that Claude owns a building
and has been cited for recurr ing safety infractions, but has little inten-
tion of complying with the orders issued by the municipality. Assume
further that Andrée and Bruno have some money to invest and that nei-
ther of them is part icularly averse to risk. Can they purchase in surance
on Claude’s building given the increased r isk of loss that stems from
the owner’s noncompli ance?1 True, the venture itself would be ri sky.
If nothing happens, Andrée and Bruno would lose their premiums and
would be asked for another instalment within a year, provided they
wanted to renew the insurance. However, the payoff could be signif‌i-
cant, as the property i n question is worth signif‌icantly more than the
1 It is also as sumed that Andrée and Br uno would disclose all mater ial circum-
stances (see Cha pter 5) and that an insurance prov ider would be willing to
accept the risk at a re asonable price.
cost of the premiums. What determine s whether Andrée and Bruno can
insure Claude’s building?
These hypothetical questions turn on the relationship between
Andrée and Bruno and the property. Insurance aside, do they have any-
thing to lose should the building be destroyed by f‌ire? Insurance aside,
do they have anything to gain from preserving t he status quo? If they
have nothing to lose or gain, they have nothing to insure — in insur-
ance parlance, they lack an in surable interest. Without some connection
to the building, Andrée and Br uno are nothing more than gamblers;
they face a risk only to the extent that they take out insurance. Now
suppose that Andrée is a te nant in Claude’s building and that Bruno has
lent money to the owner in order to f‌inance major repairs to the bui lding.
Here, the well-being of Andrée and Bruno are linked to the condition of
the property. Whether or not they purchase insura nce, they are better
off if nothing bad happens to the building. They have something worth
protecting and therefore arguably have an in surable interest in Claude’s
pr oper ty.
1) S our ce
Few would argue with the need to have an insurable interest in order
to insure. Courts w ith little discussion usually assume the point. For
example, in Constitution Insurance Co of Canada v Kosmopoulos,2 the
leading authority on the subject, the Supreme Court refers to insur-
able interest as a “requirement” and discu sses the policies at play, but
says nothing about the exact source of this condition. This omission is
noteworthy, given that the Court, in Kosmopoulos, thereupon distances
itself from a line of cases upholding the need for an insurable interest.3
There is debate about the precise source of the insurable interest
requirement and its status a s an independent principle of law.4 The
disagreement stems from t he fact that wagers, in common law, were
enforceable. Prior to the middle of the eighteenth centur y, there was no
principle of law stopping citizens from bett ing on contingencies with
2 [1987] 1 SCR 2 [Kosmopoulos].
3 Ibid at 30. The cases di sapproved of by Kosmopoulos are Guaranty Co of North
America v Aqu a-Land Exploration Ltd, [1966] SCR 133 [Aqua-Land]; Wandl yn
Motels Ltd v Commerce Gene ral Insurance Co, [1970] SCR 992 [Wandlyn Motels].
4 See Marv in G Baer & James A Rendall, Ca ses on the Canadian Law of Insurance,
6th ed (Toronto: Carswell, 200 0) at 115–16.
Insurable Inte rest 89
respect to which they had no personal connection.5 In some circles,
for example, it was common to make wagers on the life expect ancy of
third part ies as a means of securing premature testamentar y gifts, and
to make wagers on whether a ship or cargo would reach its destina-
tion wit hout incident.6 In t hese settings, it was diff‌icult to distinguish
legitimate insur ance activities from gambling. Stil l, according to the
lawmakers of the time, a line had to be drawn between the two. Al-
though insurance was an emerging industry, with great potential for
improving public welfare, gambling was increasingly disfavoured and
perceived as responsible for many socia l ills.
Matters were somewhat clarif‌ied by leg islation. In order to advance
the public interest, the English Parliament adopted two statutes, the
Marine Insurance Act7 in 1745 and the Life Assurance Act 1774.8 The lat-
ter statute is also know n as the Gambling Act. In essence, these statutes
outlawed wagers made under the guise of insurance. Pursuant to both
acts, persons insuring were required to have an “intere st” in the object
of their insurance, whether the object was a ship, a shipment, or a per-
son. Any insurance purcha sed in the absence of an “interest” were, from
that day forward, considered to be nul l and void. Thus, the requirement
of an insurable interest was born by statute. However, the statutes did
not def‌ine what Parliament meant by “interest.” Was a pecuniary i nter-
est required or was it suff‌icient to be emotional ly attached to the object
of the contract? What about proprietary interests and those based on
contract? Were they determinative of the issue? The statutes provided
no assistance — only a general forewar ning that anyth ing done con-
trary to the “true intent and meaning”9 of the Acts would henceforth
be invalid.
5 As late as 1746, it was uncertai n whether an insurable intere st was necessary
to support an in surance policy. See, for example, Depa ba v Ludlow (1720), 1
Comyns 360; Godd art v Garett (1692), 2 Vern 269 (Ch).
6 See, for example, Earl of March v Pigot (1771), 98 ER 471. In this famous case,
Earl and Pigot sig ned a contract pursuant to which P igot agreed to transfer a
f‌ixed sum to the E arl if Pigot’s father died before the fat her of a third party. In
return, the E arl agreed to transfer t hree times the amount to Pigot i f the third
party’s fat her died before Pigot’s father. At the time of the a greement, Pigot’s
father was eight y years of age, whereas the othe r father was only f‌ifty. Unbe-
knownst to h im, Pigot’s father had died on the eve th at the contract was signed.
Pigot refused to p ay, arguing th at the contract was void for complete lack of
consideration. Yet neither he nor t he court questioned the contract ’s validity
from the standp oint of public policy.
7 19 Geo 2, c 37.
8 14 Geo 3, c 48.
9 This quotation is take n from the preamble of the Life Assurance Act 1774, ibid.

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