I shan’t argue against your view.
But the strong likelihood is that insurers won’t do it so the Trustees, should, in my view, insure the property to protect themselves. They should also make sure the insurance is adequate - rebuild values, risks covered etc. For example, often Trustees will have policies used for landlords, which aren’t sufficient unless there is a tenancy agreement in place.
The persons having an insurable interest in a property are:
1 the legal owner (including the seller after exchange of contracts, whether or not risk has passed to the buyer)
2 the beneficial owner (including the buyer after exchange of contracts, whether or not risk has passed to the buyer).
3 the tenant and the landlord under a lease. They have different interests and the assignee of a lease will have a separate insurable interest from that of the tenant after exchange of contracts.
4 the mortgagor and the mortgagee. They have different interests.
A broader test of “factual expectation” has been applied in the Mark Rowlands case cited above, subsequently in Prezzo, and obiter in Glengate. A person with a limited interest in a property has an insurable interest in it and may be able to claim that the insurance policy owned by a third party benefits him jointly.
In Rowlands the policy was in the landlord’s name, but the cost of the premiums had been paid from the “insurance rent” paid under the lease by the tenant. In Glengate the Court said obiter that the property owner could have claimed under its own policy covering the property for the loss in the fire of architects’ plans and drawings owned by them "on the basis of a factual expectation of ownership”. The ratio was that the claimant could claim under its own consequential loss policy.
This could assist a beneficiary if he were not within 2 above though I think he would be. s19 TA 1925 only gives the trustees a power to insure but s20 comprehends that a beneficiary may receive the proceeds. The case of Gaussen v Whatman [1905] 93 LT 101 concerned a beneficiary who did insure. He was entitled to keep the proceeds for himself but only because the premiums were not paid out of trust income when s20 would have applied.
I cannot speak as to insurers’ practice although in my experience they will insure you against anything—except risk–and making a claim is not the way to find out whether the policy is valid.
Jack Harper
I shan’t argue against your view.
But the strong likelihood is that insurers won’t do it so the Trustees, should, in my view, insure the property to protect themselves. They should also make sure the insurance is adequate - rebuild values, risks covered etc. For example, often Trustees will have policies used for landlords, which aren’t sufficient unless there is a tenancy agreement in place.
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Previous Replies
Your contact is in my option incorrect to state that a life tenant has no insurable interest I trust property. An equitable interest in property is sufficient to create an insurable interest.
I’m also not convinced of the statement in your final paragraph. Whether as a matter of practice insurers refuse to accept a policy in the name of say a life tenant is a different matter.
Malcolm Finney
So, before I finally do move on. I asked a contact of mine, a chartered insurance broker no less, who has developed insurance products for Trust and Probate Properties. He has many years experience in Insurance, with a specialism in this field.
“A good question but you are correct. The life tenant has no insurable interest in the property. It needs to be insured in the name of the owner.”
“If they continue to insure the buildings in their name the insurers are within their right to void the policy from inception as it’s a material fact (and decline claims as a result).”
Yours the ever faithful Karl Taylor
Having looked into this further, it seems there is no longer any requirement for an insurable interest in indemnity insurance. This is because of the introduction of the Gambling Act 2005, which declares that gambling contracts are enforceable. However, the indemnity principle still applies, and the policyholder will only be compensated if he suffered a loss.
In any event, even prior to the Gambling Act, there was no need for a legal or equitable interest in the property:
‘In later cases, however, the courts moved away from a strict definition of
insurable interest. As Lord Justice Waller put it in Feasey, “something less than a
legal or equitable interest [in the property] … has been thought to be sufficient”’
The Law Commission state that, for the indemnity principle to apply,
‘The policyholder…requires an interest in the subject matter of the insurance or exposure to legal liability for the loss of another in order to have a valid claim.’
In my view, it is clear that a life tenant has an interest in the property he is occupying, and, therefore, any life tenant has an insurable interest. However, despite that, it may be that, for their own reasons, insurers are reluctant to allow life tenants to take out insurance.
See Part 5 of the Law Commission’s report:
https://www.lawcom.gov.uk/app/uploads/2015/06/ICL4_Insurable_Interest.pdf
It is completely incorrect to say that “Furthermore, it is clear that one does not need to have an legal or equitable relationship to the property insured”. The need for a legal or equitable relationship to the property insured goes to the heart of an “insurable interest”. Furthermore it does not follow as you state “This explains why somebody can take out an insurance on someone else’s life despite them not having a legal or equitable interest in another’s life”.
Life insurance requires the person taking out the life insurance to have an insurable interest in the life assured. Without such an interest a life policy is not possible. The insurable interest re life insurance is based on natural love and affection or pecuniary interests.Without either there can be no insurable interest.
The case Rowlands v Berni Inns is about the enforceability of insurance contracts.
Malcolm Finney
Some very interesting points raised here. I have done some research, and I found a highly relevant case (Mark Rowlands Ltd. v. Berni Inns Ltd. and Others [1986] Q.B. 211).
In that case, the claimant was the owner of a building and the defendant was the tenant of the basement flat in that building. The tenant paid a proportion of the insurance premium but was not named on the policy.
The defendant was treated as having an insurable interest because he benefited from the existence of the building and suffered prejudice from its destruction. The judge in that case then refers to another case which defines an ‘insurable interest’:
In order to refute it one only has to quote part of the classic definition of insurable interest given by Lawrence J. in Lucena v. Craufurd (1806) 2 B. & P. 269, 302:
“A man is interested in a thing to whom advantage may arise or prejudice happen from the circumstance which may attend it; … And whom it importeth, that its condition as to safety or other quality should continue: … To be interested in the preservation of a thing, is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction.”
In my view, it is clear from this that a life tenant has an insurable interest in the property he occupies as he benefits from its existence and is prejudiced by its destruction, and I do not consider that to be dependent on the trust instrument imposing an obligation to insure on him. Furthermore, it is clear that one does not need to have an legal or equitable relationship to the property insured. This explains why somebody can take out an insurance on someone else’s life despite them not having a legal or equitable interest in another’s life.
Despite the tenant not being named on the policy, the claimant was treated as having insured the property for the joint benefit of himself and the tenant. Therefore, the benefit of the insurance, to the extent of the defendant’s interest in the subject matter of the insurance, belonged to the tenant. The reason the claimant was treated as having insured for both his benefit and for the defendant’s benefit was because that was the mutual intention of both parties. I would say that that is the reason the ‘Inheritance Tax Planning Handbook’ recommends getting the trustee’s name noted on the insurance as his name being on there is evidence in favour of the fact the insurance was not intended solely to be for the beneficiary’s benefit.
Thank you Jack, that was an interesting read. I agree with your analysis of insurable interests. I also refer everyone to the case of Feasey v Sun Life Assurance Co
of Canada [2003] EWCA Civ 885,*, which is the leading authority on insurable interests.
Although, it is perhaps worth repeating that there is no need for an insurable interest in respect of indemnity insurance, in contrast to non-indemnity insurance. I quote from the Law Commission report:
‘Under the Gaming Act 1845 and Marine Insurance Act 1906, insurance contracts without interest were deemed to be wagers and therefore unenforceable. Under the Gambling Act 2005, contracts by way of gaming or wagering are now enforceable. As a result, the need for any formal distinction between indemnity insurance and wagering agreements for the purposes of enforceability has disappeared. As we shall see later, it appears that for the purposes of enforceability at least, insurable interest is no longer necessary in non-marine indemnity insurance in England and Wales’ (paragraph 2.18), and,
‘When the Gambling Act 2005 came into force (on 1 September 2007) the law on insurable interest in indemnity insurance changed. Insurable interest is no longer required to enforce most forms of indemnity insurance.’ (paragraph 5.11)
The discussion continues at paragraph 5.26 under the heading ‘Insurable interests in land and buildings’.
Thanks for mentioning the Feasey case, which I had missed. I particularly enjoyed para 7 which justifies the acid comment at the end of my last post.
"7. Mr Kendrick QC, who argued the appeal with great skill on behalf of Sun Life, accepts that the court’s attitude is as stated by Brett MR in Stock v Inglis [1884] 12 QBD 564 at 571 where he said:
“In my opinion it is the duty of a court always to lean in favour of an insurable interest, if possible, for it seems to me that after underwriters have received the premium, the objection that there was no insurable interest is often, as nearly as possible, a technical objection, and one which has no real merit, certainly not as between the assured and the insurer. Of course we must not assume facts which do not exist, nor stretch the law beyond its proper limits, but we ought, I think, to consider the question with a mind, if the facts and the law will allow it, to find in favour of an insurable interest.”
Jack Harper
Thank you Jack, that was an interesting read. I agree with your analysis of insurable interests. I also refer everyone to the case of Feasey v Sun Life Assurance Co
of Canada [2003] EWCA Civ 885,*, which is the leading authority on insurable interests.
Although, it is perhaps worth repeating that there is no need for an insurable interest in respect of indemnity insurance, in contrast to non-indemnity insurance. I quote from the Law Commission report:
‘Under the Gaming Act 1845 and Marine Insurance Act 1906, insurance contracts without interest were deemed to be wagers and therefore unenforceable. Under the Gambling Act 2005, contracts by way of gaming or wagering are now enforceable. As a result, the need for any formal distinction between indemnity insurance and wagering agreements for the purposes of enforceability has disappeared. As we shall see later, it appears that for the purposes of enforceability at least, insurable interest is no longer necessary in non-marine indemnity insurance in England and Wales’ (paragraph 2.18), and,
‘When the Gambling Act 2005 came into force (on 1 September 2007) the law on insurable interest in indemnity insurance changed. Insurable interest is no longer required to enforce most forms of indemnity insurance.’ (paragraph 5.11)
The discussion continues at paragraph 5.26 under the heading ‘Insurable interests in land and buildings’.
–
Previous Replies
The persons having an insurable interest in a property are:
1 the legal owner (including the seller after exchange of contracts, whether or not risk has passed to the buyer)
2 the beneficial owner (including the buyer after exchange of contracts, whether or not risk has passed to the buyer).
3 the tenant and the landlord under a lease. They have different interests and the assignee of a lease will have a separate insurable interest from that of the tenant after exchange of contracts.
4 the mortgagor and the mortgagee. They have different interests.
A broader test of “factual expectation” has been applied in the Mark Rowlands case cited above, subsequently in Prezzo, and obiter in Glengate. A person with a limited interest in a property has an insurable interest in it and may be able to claim that the insurance policy owned by a third party benefits him jointly.
In Rowlands the policy was in the landlord’s name, but the cost of the premiums had been paid from the “insurance rent” paid under the lease by the tenant. In Glengate the Court said obiter that the property owner could have claimed under its own policy covering the property for the loss in the fire of architects’ plans and drawings owned by them "on the basis of a factual expectation of ownership”. The ratio was that the claimant could claim under its own consequential loss policy.
This could assist a beneficiary if he were not within 2 above though I think he would be. s19 TA 1925 only gives the trustees a power to insure but s20 comprehends that a beneficiary may receive the proceeds. The case of Gaussen v Whatman [1905] 93 LT 101 concerned a beneficiary who did insure. He was entitled to keep the proceeds for himself but only because the premiums were not paid out of trust income when s20 would have applied.
I cannot speak as to insurers’ practice although in my experience they will insure you against anything—except risk–and making a claim is not the way to find out whether the policy is valid.
Jack Harper
I shan’t argue against your view.
But the strong likelihood is that insurers won’t do it so the Trustees, should, in my view, insure the property to protect themselves. They should also make sure the insurance is adequate - rebuild values, risks covered etc. For example, often Trustees will have policies used for landlords, which aren’t sufficient unless there is a tenancy agreement in place.
–
Previous Replies
Your contact is in my option incorrect to state that a life tenant has no insurable interest I trust property. An equitable interest in property is sufficient to create an insurable interest.
I’m also not convinced of the statement in your final paragraph. Whether as a matter of practice insurers refuse to accept a policy in the name of say a life tenant is a different matter.
Malcolm Finney
So, before I finally do move on. I asked a contact of mine, a chartered insurance broker no less, who has developed insurance products for Trust and Probate Properties. He has many years experience in Insurance, with a specialism in this field.
“A good question but you are correct. The life tenant has no insurable interest in the property. It needs to be insured in the name of the owner.”
“If they continue to insure the buildings in their name the insurers are within their right to void the policy from inception as it’s a material fact (and decline claims as a result).”
Yours the ever faithful Karl Taylor
Having looked into this further, it seems there is no longer any requirement for an insurable interest in indemnity insurance. This is because of the introduction of the Gambling Act 2005, which declares that gambling contracts are enforceable. However, the indemnity principle still applies, and the policyholder will only be compensated if he suffered a loss.
In any event, even prior to the Gambling Act, there was no need for a legal or equitable interest in the property:
‘In later cases, however, the courts moved away from a strict definition of
insurable interest. As Lord Justice Waller put it in Feasey, “something less than a
legal or equitable interest [in the property] … has been thought to be sufficient”’
The Law Commission state that, for the indemnity principle to apply,
‘The policyholder…requires an interest in the subject matter of the insurance or exposure to legal liability for the loss of another in order to have a valid claim.’
In my view, it is clear that a life tenant has an interest in the property he is occupying, and, therefore, any life tenant has an insurable interest. However, despite that, it may be that, for their own reasons, insurers are reluctant to allow life tenants to take out insurance.
See Part 5 of the Law Commission’s report:
https://www.lawcom.gov.uk/app/uploads/2015/06/ICL4_Insurable_Interest.pdf
It is completely incorrect to say that “Furthermore, it is clear that one does not need to have an legal or equitable relationship to the property insured”. The need for a legal or equitable relationship to the property insured goes to the heart of an “insurable interest”. Furthermore it does not follow as you state “This explains why somebody can take out an insurance on someone else’s life despite them not having a legal or equitable interest in another’s life”.
Life insurance requires the person taking out the life insurance to have an insurable interest in the life assured. Without such an interest a life policy is not possible. The insurable interest re life insurance is based on natural love and affection or pecuniary interests.Without either there can be no insurable interest.
The case Rowlands v Berni Inns is about the enforceability of insurance contracts.
Malcolm Finney
Some very interesting points raised here. I have done some research, and I found a highly relevant case (Mark Rowlands Ltd. v. Berni Inns Ltd. and Others [1986] Q.B. 211).
In that case, the claimant was the owner of a building and the defendant was the tenant of the basement flat in that building. The tenant paid a proportion of the insurance premium but was not named on the policy.
The defendant was treated as having an insurable interest because he benefited from the existence of the building and suffered prejudice from its destruction. The judge in that case then refers to another case which defines an ‘insurable interest’:
In order to refute it one only has to quote part of the classic definition of insurable interest given by Lawrence J. in Lucena v. Craufurd (1806) 2 B. & P. 269, 302:
“A man is interested in a thing to whom advantage may arise or prejudice happen from the circumstance which may attend it; … And whom it importeth, that its condition as to safety or other quality should continue: … To be interested in the preservation of a thing, is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction.”
In my view, it is clear from this that a life tenant has an insurable interest in the property he occupies as he benefits from its existence and is prejudiced by its destruction, and I do not consider that to be dependent on the trust instrument imposing an obligation to insure on him. Furthermore, it is clear that one does not need to have an legal or equitable relationship to the property insured. This explains why somebody can take out an insurance on someone else’s life despite them not having a legal or equitable interest in another’s life.
Despite the tenant not being named on the policy, the claimant was treated as having insured the property for the joint benefit of himself and the tenant. Therefore, the benefit of the insurance, to the extent of the defendant’s interest in the subject matter of the insurance, belonged to the tenant. The reason the claimant was treated as having insured for both his benefit and for the defendant’s benefit was because that was the mutual intention of both parties. I would say that that is the reason the ‘Inheritance Tax Planning Handbook’ recommends getting the trustee’s name noted on the insurance as his name being on there is evidence in favour of the fact the insurance was not intended solely to be for the beneficiary’s benefit.