Introduction
According to E.R. Hardy Ivamy, a contract of insurance in the widest sense of the term may be defined as a contract whereby one person, called the “Insurer”, undertakes, in return for the agreed consideration, call the “Premium”, to pay to another person, called the “Assured”, a sum of money, or its equivalent, on the happening of a specified event. The fact that a person having no insurable interest in the life of person insured has availed for insurance for the latter, is in itself a wager policy which the law denounces. It is to prevent this wagering practice that the concept of insurable interest has been developed.
In all cases there must be reasonable ground, founded upon the relations of the parties to each other, either pecuniary or of blood or affinity, to expect some benefit or advantage from the continuance of the life of the assured. Otherwise the contract is a mere wager, by which the party taking the policy is directly interested in the early death of the assured. It is well established by case laws that such insurable interest will include persons related with “love and affection” or “closely related by blood or law” and requiring that an insurable interest in one's life be founded on the reasonable "relations of the parties to each other, either pecuniary or of blood or affinity".
Research methodology
Objective
The objective of this project is to critically analyze the requirement of insurable interest between husband and wife for procuring insurance on life and property of another.
Research Question
The Following are the research questions:
• What is insurable interest necessary to procure insurance in name of spouse?
• What will be the negative effect if such insurable interest is not made mandatory?
• Is there any issue of proving that an insurable interest exists or does not exist?
• If such issue exist, upon whom does the onus lies?
• When should the insurable interest exist?
Coverage & Scope
This project has covered writings from prominent authors and also judicial ruling from across the globe but more specifically from US and English Laws and its application in Indian courts.
Hypothesis
“Insurance contract without insurable interest is a mere wager, by which the party taking the policy is directly interested in the early death of the assured or any other unlawful act of like nature.”
CHAPTER 1: INSURABLE INTEREST IN LIFE INSURANCE OF SPOUSE
The requirement of close family ties and economic gain:
An insurable interest in life is often found in relationship of husband and wife, which is basically a financial relationship in which insured is guarding against a financial loss of future support. An insurable interest for “family love and affection” in a spouse’s life rests on a close family relationship, which can be formed by consanguinity or affinity. A exact observance to the theory of indemnity corresponding to insurance of life would still involve a presentation of a accurate expectation of financial profit when the life of the person insured continues to exist as a result, a “insurable interest of love and affection” in a spouse’s life is perhaps a "legal fiction." On the other hand, various case laws have not taken into consideration this “insurable interest of love and affection” exclusively upon a “close familial relationship”, but have also acknowledged that had the insured person been alive, there might have been some financial gain as well and the prospect of benefit or assistance from the insured's life goes further than close family attachments.
The Knowledge and Consent Requirement
The Knowledge and consent of the insured spouse is essential and such prerequisite rests on grounds of public policy and such a practice might be a fruitful source of crime , furthermore acts as protection from unlawful wagering agreements.
CHAPTER2: WHEN MUST AN INSURABLE INTEREST IN LIFE OF ANOTHER EXIST
A. Property Insurance
In case of insurance of property, it is universally agreed that at the time of loss the owner of the policy ought to have an insurable interest in the property. It is well established that both husband and wife have insurable interest in each other. Generally courts and prominent writers have the same opinion that since property insurance usually is regarded as contract of indemnity, there is no loss if it is not established that there was a valid insurable interest in the property. It will only be promoting contract of wagering if such recover is allowed when there is no insurable interest at the time when the loss occurred. As a result, it must be established by the policy owner that an insurable interest existed at the time of loss.
B. Life Insurance:
Contrary to the above rule, Life Insurance requires presence of insurable interest only at the time policy is affected. It is merely for the benefit of spouse, that a life insurance is procured and its existence “does not change with the passage of time”. As per the contemporary common observation, each spouse in a life insurance contract is regarded as to have an insurable interest based on love and affection in the life of the other spouse, the validity of which remains unaffected even on divorce. Even if insurable interest ceased at the time of death, amount of policy will still be recoverable provided that an insurable interest was present at the time of procurement of the policy.
In situations where the wife has a right to child support payments or alimony, she retains an insurable interest for her ex-husband's life and the issue of the cessation of an insurable interest does not emerge.
In this regard the question that arises is, if insurable interests based on “love and affection” normally subsist in a husband-wife relationship mainly because of their marriage, what effect will a divorce take on such interest? If a spouse has not yet acquired life insurance on the life of the other spouse at the time of the divorce, an unqualified divorce in general will cease any insurable interest based on love and affection of an ex-spouse. On the other hand, if there is a legitimate financial interest in the former spouse’s life, for instance a responsibility for child support or alimony or spousal support responsibility, in such cases the courts will normally permit an ex-spouse to procure insurance in ex-spouse's life.
When a spouse previously has a former life insurance policy on the life of the other spouse at the time of divorce, what is its effect on a spouse's insurable interest based on love and affection? The fact that it is only at time of the inception of insurance policy when an insurable interest in the life of spouse must exist is widely accept by majority of courts. Furthermore, any succeeding cessation of insurable interest of a spouse in the life of other spouse i.e. by virtue of divorce will have no effect on the validity on the policy when such an interest existed at time of procuring the policy. Be that as it may, an outright divorce in general concludes this insurable interest based on love and affection between ex-mates with the exception of other legitimate monetary interests, for example, spousal support and child support commitments.
What then keeps such ex-spouse, who is the major beneficiary in a previous life insurance policy, from taking the life of his/her ex-spouse in order to recuperate the proceeds of the insurance? Is there not a fundamental wagering contract issue here?
CHAPTER 3: WHO MAY PROVE THE PRESENCE OF INSURABLE INTEREST
It is a general presumption that spouses have an insurable interest in each other’s life, the proof of which is not required to be established. In the case of Griffith v. Fleming , Vaughan Williams, L.J. held that the husband has an interest in his wife’s life which must be assumed. It is not necessary in order to establish the validity of a policy of insurance affected by a husband upon the life of his wife to give affirmative evidence as to the existence and extent of a pecuniary interest of the husband in the life of his wife. The interest is presumed to the extent of the amount insured by the policy. Notwithstanding the provisions of the Act of 1774, it is not necessary, in order to maintain the action that the plaintiff should prove that he had any pecuniary interest in the life of his wife. On one hand it is the legal obligation of the husband to support his wife and on the other hand, wife is reliant on economic support of her husband, so in such a scenario it is said that no evidence is required. Moreover, the insurable interest is indefinite because the degree of loss or gain cannot be measured. In life insurance, a close relationship like that of the husband and wife which cannot be rigorously portrayed as financial can procure an insurable interest in the life of each other.
Conclusion
The insurable interest requirement for life insurance rests on a sound fundamental public policy justification that necessitates a beneficiary to have a legitimate insurable interest in the life of another so as to avoid a “contract of wagering” which could also induce the beneficiary to commit homicide on the insured in order to recuperate the proceeds of the insurance. At is concluded that extra monetary interest is not required to have an insurable interest between husband and wife.
While drafting the laws relating to insurable interest, we should attempt to strike a standard that best accommodate the rationale of the prerequisite of insurable interest and individual welfare of those using insurance. At the time of determination as to when an insurable interest must exist, considerations like various nature of life and property insurance becomes important. An insurable interest must be present at the time of loss, owing to the fact that property insurance is clearly indemnity insurance. To hold the requirement of insurable interest additionally at the beginning of the insurance contract, would in effect, increase the purposes of the insurable interest requirement and would then make the favorable property management difficult. Therefore, in case of property insurance there must be a requirement for insurable interest only at the time of loss.
Though life insurance consists of indemnity characteristics, presence of investment feature makes existence of an insurable interest necessary. The requirement of presence of the insurable interest at the time of entering life policy thereby protects the objective of the requirement of the insurable interest.
The condition of having an insurable interest at the time of loss is consistent with the basic principle of considering property insurance as indemnity insurance. Whereby the policy owner hold no interest, he suffers no loss and cannot recover. This necessity obstructs considering the insurance as a wagering device and damage of property by the policy owner.
The necessity of having an insurable interest at the time a policy is affected is entrenched in the dictum and is not validated by reasoning. As far as the law itself provides for the policy owner to have an insurable interest during the loss, using insurance as a wagering instrument or for carrying out damage to the property should not be backed by fear. If in case, such fear crops up, it can be easily driven out by necessitating that one who lacks insurable interest in the property concerned to be insured, must obtain his policy in good faith anticipating the interest in such property.