[2003] EWCA Civ 885


CA (Ward LJ, Waller LJ, Dyson LJ) 26/6/2003






A personal accident and illness insurance policy, entered into between a Protection and Indemnity Club and a Lloyd's syndicate, which paid fixed benefits to the club in respect of bodily injury and/or illness sustained by a person engaged on board a vessel or offshore rig entered by a member with the club, was not void under s.1 Life Assurance Act 1774 for lack of an insurable interest on the part of the club.


Appeal from the judgment of Langley J (summarised below) deciding that a P & I Club ('Steamship') had an insurable interest in relation to a contract of insurance made between it and syndicate 957. Steamship insured the liabilities of its members for personal injury or death. In 1995 Steamship and syndicate 957 entered into a personal accident and illness master lineslip policy under which the syndicate agreed to pay fixed benefits to Steamship in respect of bodily injury and/or illness sustained by a person (an "original person") engaged on board a vessel or offshore rig entered by a member with Steamship. Syndicate 957 reinsured its liability under the master lineslip 50 per cent with Sun Life and 50 per cent with Phoenix via brokers, Centaur. Sun Life submitted that Steamship had no insurable interest in the lives and well being of the original persons when entering into the master lineslip and that the insurance was therefore null and void under s.1 Life Assurance Act 1774. Alternatively, Sun Life and Phoenix asserted that Steamship was seeking to claim more than the value of any insurable interest it had contrary to s.3 of the 1774 Act. After 1 October 1998 Centaur ceased to have authority to write business for Phoenix and an issue arose in relation to reinsurance of the master lineslip policy brokered by Centaur after that date as to whether Centaur took 100 per cent for Sun Life or whether Sun Life's line remained at 50 per cent. The judge held that Steamship did have an insurable interest and that s.3 of the 1774 Act did not apply. The insurers appealed on those issues. The syndicate appealed against the finding that Sun Life had not taken 100 per cent of the 1998 reinsurance.

HELD: (1) It was the duty of the court always to lean in favour of an insurable interest (Stock v Inglis (1884) 12 QBD 564). (2) The starting point was the question whether there was an interest and not whether the contract was one of gaming or wagering. The fact that it was not suggested that the policy was a wagering contract did not demonstrate that there was a sufficient interest for the purposes of s.1 of the 1774 Act. (3) The amendment of s.2 of the 1774 Act by s.50 Insurance Companies Act 1973 indicated that Parliament did not intend that s.1 would make null and void an insurance on lives of persons unidentified as at the date of the policy but who were within a class or description such as that given for "original persons" in this case. (4) It was difficult to define insurable interest in words which would apply in all situations. The words used to define insurable interest in a property context should not be slavishly followed in different contexts and words used in a life insurance context where one identified life was the subject of the insurance might not be apposite where the subject was many lives and many events. (5) In a life policy the date at which the insurable interest must exist was the date of the taking out of the policy. That was also the date for valuing the insurable interest (Dalby v India and London Life Assurance Co (1854) 15 CB 364). (6) There was no hard and fast rule that because the nature of an insurable interest related to a liability to compensate for loss that insurable interest could only be covered by a liability policy rather than a policy insuring property or life or properties or lives (Deepak Fertilisers & Petrochemical Corp v Davy McKee (London) Ltd (1999) 1 Lloyd's Rep 387 considered). The question whether a policy embraced the insurable interest intended to be recovered was one of construction. (7) The policy in the instant case was a policy to pay fixed sums on the happening of certain events and it therefore fell within s.1 of the 1774 Act. But it was not a simple life policy which paid Steamship on the death of a particular identified individual. The insurance covered a three year period and agreed to pay fixed sums by reference to bodily injury and/or illness sustained by original persons but in respect of losses occurring in respect of member entries. The object of the policy was to cover Steamship for the losses it would suffer as insurer of its members under its rules. As in Dalby, Steamship had a legal obligation which might lead to substantial sums being payable. Steamship had a pecuniary interest in covering losses over the three year period and that interest subsisted and was capable of pecuniary evaluation when the policy was taken out. The judge was right that Steamship had an insurable interest in the lives and well-being of original persons as defined by the policy. There was no reason not to construe the subject of the disputed policy as embracing that insurable interest. The policy was not contrary to s.1. (8) Sun Life had failed to show that Steamship was seeking to recover an amount in excess of the value of the interest as at the date of the policy and there was no breach of s.3. (9) The judge was right that although Centaur had authority to bind Sun Life as to 100 per cent in respect of the 1998 reinsurance it did not in fact do so and Sun Life's line remained at 50 per cent. (10) (Per Ward LJ dissenting) The subject matter of the insurance was the death, bodily injury or illness suffered by an original person. That was the contingency. An "original person" was not confined to those who would be able to establish the owner's liability to them for personal injury sustained on board the owner's vessel. That was a second contingency. On the basis of Dalby and Hebdon v West (1863) 3 B & S 579 Steamship had no insurable interest because until the member's liability to compensate was established the death or injury created no more than an expectation of disadvantage. That was insufficient to create an insurable interest since there had to be some legal or equitable interest between the insured and the subject matter of the insurance (Lucena v Craufurd (1806) 2 Bos & Pul (MR) 269 and Macaura v Northern Assurance Co Ltd (1925) AC 619). Steamship's potential or contingent liability to reimburse its members was not an insurable interest.

Appeals dismissed.


Julian Flaux QC, David Lord instructed by Lovells for the appellant. Dominic Kendrick QC and Simon Kerr instructed by Clifford Chance for the respondents. Anthony Boswood QC and Richard Handyside instructed by Richards Butler for Steamship.


LTL 26/6/2003 : TLR 12/7/2003


Judgment Approved subject to editorial corrections - 60 pages


Document No. AC0103211




[2002] EWHC 868 (Comm)

QBD Commercial Court (Langley J) 17/5/2002


In approaching s.3 Life Insurance Act 1774 the court should confine itself to a consideration of whether the insurable interest it found to exist under s.1 of the Act had in fact been insured in a manner or at a value which could be seen to be such that it either was or was not fairly to be characterised as gaming or wagering at the time of the contract.


The underwriters ('Syndicate 957') sued the reinsurers ('Sun Life' and 'Phoenix') for unpaid amounts allegedly due under reinsurances ('the reinsurance action'). The insured, a P & I Club ('Steamship'), sued Syndicate 957 seeking declaratory relief that the Master Lineslip governing its insurance was valid ('the insurance action'). Steamship provided cover to its members for, amongst other things, members' liabilities for personal injury or death of persons occurring on or in relation to vessels entered with Steamship. Rather than entering into a conventional reinsurance, in June 1995 Steamship and Syndicate 957 entered into a Personal Accident and Illness Master Lineslip policy, which would pay Steamship fixed benefits for death and permanent and temporary total disability of a person engaged on board a member's vessel, calculated in accordance with a schedule of compensation contained in the Master Lineslip. The Master Lineslip was renewed from time to time and the proceedings concerned the renewals relating to the period 1997-2001 and certain reinsurances in respect of them. In the reinsurance action, the reinsurers alleged that the reinsurance contracts were voidable and had been avoided for various non-disclosures and/or misrepresentations and/or breaches of the duty of utmost good faith by or on behalf of Syndicate 957 and/or because the underlying Master Lineslip agreed between Steamship and Syndicate 957 was in breach of s.1 and/or s.3 Life Assurance Act 1774. Sun Life and Phoenix claimed damages and/or repayment of sums paid on the basis of a mistake of fact or law. The principal underlying basis of these allegations was that the fixed benefits payable under the Master Lineslip were represented to be but were not a realistic estimate of the average sums likely to be paid by Steamship to members of the Club in respect of the same deaths and disablements and that Steamship in fact made a substantial "over-recovery" as a result of the levels at which the benefits were set and other reinsurances available to Steamship for the same business. Phoenix alleged that, to the knowledge of Syndicate 957, the fronting reinsurer's ('Centaur') authority to underwrite for Phoenix was terminated with effect from 1 October 1998 and so Centaur had no authority to extend the reinsurance contracts for the year February 2000 to 2001. Whilst Syndicate 957 alleged that Centaur had actual or ostensible authority to act for Phoenix in the alternative it alleged, and Sun Life disputed, that Sun Life was bound to 100% for that year. In the insurance action, Syndicate 957's primary case was that the Master Lineslip was not in breach of the 1774 Act but it relied against Steamship on the Sun Life allegations to the contrary, should they succeed.




THE 1774 ACT


Section 1. (1) Steamship had a real and significant contingent economic interest in the lives and well being of persons on vessels entered by members with it. The extent of that interest (whether or not an over-recovery was made) was reflected in the Club's paid and estimated liabilities to its members arising from injury to those persons. The fact that some of those persons were not identifiable at inception of the cover and they might change over the period of cover should not affect the substance of the position. (2) Insurers should meet their liabilities unless there were matters of law or fact that compelled another conclusion. (3) The Master Lineslip was a hybrid cover which was part personal accident and part liability. But there was no compelling reason why a liability exposure should not be insured as such. The decisions to the contrary were in the context of property insurance and often related to insurance against the loss of a benefit and there was no reason to import them into other types of insurance where the existence of a "legal or equitable right" was not a normally appropriate concept and the context was a contingent liability not the loss of a benefit. (4) Although the Master Lineslip was unusual, if not unique, there was no discernible or rational policy or other principle or reason why the law should strike it down as unlawful when it was accepted rightly and inevitably that in no sense did it amount to gaming or wagering, was not suggested to be contrary to any other policy consideration and was not commercially objectionable.


Section 3. (5) Section 3 had no application. (6) There was no requirement to be found in s.3 to enter into any detailed examination of the values of insurable interests with or without the benefit of hindsight, nor was it required that a court should examine and assess whether a given value was arrived at without negligence or reasonably. The underlying purpose of s.3 was derived from s.1: to outlaw recovery of the proceeds of gaming or wagering. In approaching s.3 the court should confine itself to a consideration of whether the insurable interest it found to exist under s.1 had in fact been insured in a manner or at a value which could be seen to be such that it either was or was not fairly to be characterised as gaming or wagering at the time of the contract.




(7) Sun Life and Phoenix had failed, on the evidence before the court, to establish the representations on which they relied. In every reinsurance placing there was likely to be an understanding that the relevant reinsured underwriter had acted carefully and professionally in writing the original insurance but that would not normally become a binding representation that there had been no want of care on his part.




(8) Centaur had neither express nor apparent authority to write the extension on behalf of Phoenix and Phoenix had no liability in respect of the extension. Sun Life was on risk for 50% of the extension but no more.


Steamship was entitled to the declarations it sought. Syndicate 957 was entitled to be paid sums due from Sun Life and Phoenix under the reinsurance contracts on a 50% basis, save in respect of the year 2000/1 when Sun Life alone was liable on a 50% basis.


Mr J Flaux QC, Mr D Lord and Miss C Laband instructed by Lovells for Syndicate 957. Mr D Kendrick QC and Mr S Kerr instructed by Clifford Chance for Sun Life. Mr D Kendrick QC, Mr S Kerr and Mr A Fenton instructed by Barlow Lyde & Gilbert for Phoenix. Mr A Boswood QC and Mr R Handyside instructed by Richards Butler for Steamship.


LTL 24/5/2002 : (2002) 2 All ER (Comm) 492


Approved - 67 pages