England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
Mr Justice Langley

		Royal Courts of Justice Strand, London, WC2A 2LL
		26th June 2003

Lord Justice Waller:

1. This is an appeal from the judgment of Langley J given on 17 May 2002. That judgment is now reported at [2002] EWHC 868 (Comm). Only certain points are live on the appeal. By his judgment Langley J decided that Steamship Mutual Underwriting Association (Bermuda) Limited ("Steamship") had an insurable interest in relation to a contract of insurance made between it and syndicate 957. He further found that in relation to the reinsurance of Syndicate 957 by Sun Life Assurance Company of Canada ("Sun Life") and Phoenix Home Life Mutual Insurance Company ("Phoenix") there was no non-disclosure or misrepresentation entitling Sun Life and Phoenix to avoid the reinsurance policy. He further found however that in relation to one period of the reinsurance Centaur Underwriting Management Limited ("Centaur") had purported to write the same for Sun Life and Phoenix 50:50 when they had no authority to write for Phoenix. Syndicate 957 argued that Centaur had written the same 100% for Sun Life but the judge ruled against Syndicate 957 on that issue.
2. The non-disclosure and misrepresentation aspects have been abandoned on the appeal. The point which has taken up the greatest proportion of time on the appeal is the insurable interest point. A much shorter time was spent dealing with the authority point. That point is dealt with in the judgment of Dyson LJ with which I agree. I will deal with the insurable interest point.

How does the Insurable Interest point arise?

3. Steamship insured the liabilities of their members for personal injury or death. In about June 1995, rather than entering into a conventional reinsurance with Syndicate 957, Steamship and Syndicate 957 entered into a Personal Accident and Illness Master Lineslip Policy. The aim was to cover the liability of Steamship to its members. Under the Master Lineslip the syndicate agreed to pay fixed benefits to Steamship in respect of bodily injury and/or illness sustained by a person (an original person) who was engaged in any capacity on board a vessel or offshore rig, entered by a member with Steamship. That Master Lineslip was renewed from time to time. In particular, in about May 1998, it was renewed in respect of losses occurring on declarations attaching during three consecutive periods of 12 months from 20 February 1997 and, later, in respect of losses occurring on declarations attaching during the period 20 February 2000 to 20 February 2001.
4. Syndicate 957 reinsured its liability under the Master Lineslip. That reinsurance for the years February 1998 to February 2000, was 50% with Sun Life and 50% with Phoenix. That reinsurance was negotiated by brokers acting for Syndicate 957 and Centaur who were authorised at this stage to write for those two companies in the above proportions. On 1 October 1998 Centaur's authority to write new business for Phoenix ceased. The brokers negotiated an extension of reinsurance with Centaur for a further year on 29 October 1998. It is that negotiation which gives rise to the authority point and the question whether Centaur was agreeing to take 100% for Sun Life.
5. It is Sun Life who have taken the point that Steamship had no "insurable interest" in the lives and wellbeing of the original persons, when entering into the Master Lineslip for the three years from February 1997 and after. They contend that the insurance is illegal by virtue of section 1 of the Life Assurance Act 1774. In the alternative Sun Life assert that Steamship are seeking to claim more than the value of any insurable interests they had, and are not entitled to do so by virtue of section 3 of the same Act.
6. It is not attractive to contemplate that where insurers have carefully crafted a policy which was intended to be enforceable by Steamship, a point on insurable interest could arise. As quoted in The Law of Insurance Contracts 4^th Edition by Professor Malcolm Clarke there is an observation of Mance J in The Capricorn [1995] 1 Lloyd's Rep. 622 at 641 that if insurers

"make a contract in deliberate terms which covers their assured in respect of a specific situation, a court is likely to hesitate before accepting a defence of lack of insurable interest."

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."

8. Be all that as it may, there is no doubt that the argument on behalf of Sun Life is a formidable one and cannot by any means simply be brushed aside.

The Facts

9. The facts are set out in detail in Langley J's judgment and there is no appeal therefrom. The important matters of background I summarise from that judgment as follows. In 1994 Syndicate 957 had reinsured Steamship (and other clubs) on a bodily injury "carve out" and mixed indemnity and fixed benefit basis. It seems that in September 1994 Lloyd's announced changes to its risk codes for the 1995 year of accounts. From January 1995 Accident and Health policies could only be classified as Personal Accident Insurance if payments were on a fixed benefit basis. Liability or contingent cover was treated as long tail business for reserving purposes. Personal Accident cover was treated as short tail and so did not require provision of substantial reserves to be held for long periods.
10. Mr Cackett the underwriter for Syndicate 957 wanted to preserve the substantial 1994 premium income received by the Syndicate from Steamship if he properly could, but also to maintain the PA classification. The PA concept was Mr Cackett's creation. The basic idea was to provide a fixed level of benefit payable on proof of the fact of death, PTD (Permanent Total Disability) or TTD (Temporary Total Disability) of an Original Person with medical expenses payable in addition. The level of benefits could not and would not track with any precision the amount of the actual liability of the member of Steamship or Steamship in respect of the death, PTD or TTD relating to the individual original person. But, it was intended that overall Steamship's recovery under the Master Lineslip should track as closely as possible Steamship's overall exposure.
11. Langley J demonstrated that in the drafting of the original wording there was a tension between attempting to keep the Master Lineslip within the relevant Lloyd's code, and providing the cover which Steamship desired. It is doubtful to what extent those drafting points can be relevant to the actual construction of the policy but, as Langley J pointed out, it was in that context that the word "liability" in respect of claims as against Steamship became "obligations" of Steamship, wording to which I will have to return. In addition, there was evidently in the draft at one time a provision which provided for "adjustment" and expressly for Steamship to make repayment where it transpired that fixed benefits exceeded the club's liability to a member, but that provision was not maintained.
12. There was a dispute at the trial whether Steamship were intending to cover legal expenses incurred by virtue of the fixed benefits received. The judge found that the setting of the benefit levels was intended to contribute to Steamship's exposure including legal costs.
13. The first lineslip providing this new form of cover was effected for the period 20 February 1995 to 20 February 1996. The terms and wording were finally agreed between Syndicate 957 and Steamship in June 1995. The Master Lineslip had been signed earlier for 100% by Mr Cackett on behalf of Syndicate 957 naming Lloyd Thompson as the lineslip holder.
14. The first declaration under the Master Lineslip was accepted on 16 June 1995. It named Steamship as the insured. It was to pay Steamship benefits "calculated in accordance with the schedule of compensation" contained in the wording for death, PTD or TTD (and medical expenses in relation to TTD only) as defined in the wording. The policy limits were as specified in the schedule of compensation but also subject to a maximum of $1m for any one event and "in a maximum amount recoverable in all equivalent to 250% of the finally adjusted gross premium payable." There was an aggregate deductible of 6.6% of Steamship's net premium income or $1.5m whichever was the greater. A deposit premium of $5.5m was payable in 6 equal quarterly instalments starting on 20 May 1995 and was adjustable quarterly at 32.5% of Steamship's net premium income received in respect of member entries during the policy period.

The Wording

15. The Policy Wording was scratched in June 1995 by Syndicate 957 and Steamship. Essentially the same wording was used in all years. I will indicate variations. The insuring clause was expressed in terms that "if an Original Person sustains Bodily Injury and/or Illness we will pay to the Insured in accordance with the terms and conditions of this Insurance and according to the Schedule of Compensation after the claim has been substantiated under this Insurance".
16. Clause 1 contained a number of relevant definitions. "The Insured" was Steamship.
17. "Entered Vessel" was defined as:

"… a vessel, offshore rig and/or similar interest to be agreed which has been entered by a Member … for any of the risks enumerated herein …."

18. "Member" was defined as:

"an owner and/or … other person interested in any Entered Vessel to whom the Insured has obligations under its Rules and/or terms of entry in respect of the Bodily Injury and/or illness suffered by an Original Person."

19. "Original Person" was defined as:

"(i) any person … while engaged during the Policy Period in any capacity on board or in relation to an Entered Vessel as part of her complement, but shall include any person who is engaged by a Member during the Policy Period at the time of the Accident … and is seconded to another vessel … pursuant to a contract entered into by a Member and/or (ii) other persons while engaged during the Policy Period in any capacity on board or in relation to any Entered Vessel."

20. PTD was defined as "Bodily Injury and/or Illness which actually prevents the Original Person from attending to his or her usual business or occupation and/or assuming the same work activities as those which he or she was employed to perform immediately prior to the Accident or the manifestation of the Illness and which lasts twelve months and at the expiry of that period appears to be such that the Original Person will not thereafter be able to resume attending to such usual business or occupation and/or assume such same work activities".
21. TTD was defined as "Bodily Injury or Illness which actually prevents the Original Person from attending to his or her usual business or occupation and/or assuming the same work activities as those which he or she was employed to perform immediately prior to the Accident or manifestation of the Illness".
22. The Wording contained (Clause 2) a limited number of exclusions such as death or disablement arising out of war (and the like) and mental or psychiatric illness.
23. Clause 3 provided for claims notification and settlement of benefits. Notification of claims by Steamship had to be accompanied by "reasonable documentary proof" of the death or disablement of the Original Person, the date of the accident and inward claim, details of the circumstances of the accident and injury and, if the claim was for TTD, an estimate of the period during which the disablement appeared likely to continue and details of any medical expenses paid by Steamship, or, if the claim was for PTD, confirmation that disablement appeared likely to continue for not less than 12 months. In the event of death or PTD Syndicate 957 agreed on receipt of such notification to pay Steamship the Capital Sum specified in the Schedule of Compensation. In the case of TTD, also on receipt of such notification, Syndicate 957 agreed to

"pay the weekly benefit as specified in the Schedule of Compensation for the period of Disablement together with any Medical Expenses. Should the period of Temporary Total Disablement (either as estimated by the Insured or as actually suffered by the Original Person) exceed 152 weeks and should the Insured confirm to Underwriters that it appears that the Original Person will not thereafter be able to resume attending to his or her usual business or occupation and/or to assume the same work activities …. Underwriters … will pay to the Insured the Capital Sum Insured as if the Original Person had suffered Permanent Total Disablement less any benefit (including Medical Expenses) already paid …."

24. Payment of the benefits was to be made no later than 30 days after submission of bordereaux (Clause 4); claims notified 24 months after expiry of the Policy Period were not covered (Clause 5).
25. In place of the "adjustment" clause referred to in paragraph 10 above was Clause 6 entitled "Alteration in Circumstances" reading:

"Should the Insured at any time become aware that any confirmation or information provided to Underwriters in connection with a claim hereunder is not, or is no longer, accurate or applicable, the Insured shall immediately inform Underwriters and at the same time return to Underwriters any amount by which all payments made by Underwriters hereunder exceed the amount (if any) which would actually be payable hereunder in accordance with the accurate or applicable confirmation or information."

26. The Schedule of Compensation (Clause 9) in the original wording provided for different levels of compensation for three geographical areas: the highest level where the Entered Vessel or Member was registered or had a place of business or conducted operations in North America, half those levels for Europe, Japan or the Asean group of trading nations, and half again for anywhere else. The North American levels were US $1m for death and PTD and $4000 a week for a maximum of 152 weeks for TTD. The maximum limits (also set out in Clause 9) were $1m in respect of any one Original Person and $1m in all for any claim or claims caused by the same occurrence or series of occurrences arising out of the same event. In subsequent wordings (where appropriate) the Schedule of Compensation referred to "as declared" or was otherwise changed to reflect the terms agreed for the relevant period of cover.
27. The judge made the following comments. There is challenge to only one of those comments and I will set them out in full:-

"(i) As I have already said, I find that Mr Cackett was responsible for setting the benefit levels.

(ii) Although Ince & Co (and Mr Cackett) were concerned (because of the Audit Codes) to avoid references to Steamship's own liability to the Club's Members and specifically removed the adjustment provisions which would have resulted in re-payment of "over-recoveries" it is I think clear that both Steamship and Syndicate 957 intended that claims would only be sustainable under the cover in cases in which Steamship was itself liable to indemnify the Member concerned in respect of the accident and injury to the Original Person in question. Mr Boswood QC submits that on analysis the wording in any event requires as much; Mr Kendrick submits it does not. On any view Mr Kendrick is right in submitting that such a requirement (if any) can only be found in the depths of the definitions: see (iii).

(iii) Mr Boswood's submission is as follows. Syndicate 957 agreed to make the fixed benefit payments if an "Original Person" suffered injury. Original Persons are persons engaged on an "Entered Vessel". An Entered Vessel is one entered by a "Member" of the Club with Steamship during the relevant period in respect of any of the risks "enumerated" in the wording itself. A Member has to be a person interested in any Entered Vessel and a person to whom Steamship "has obligations under its Rules … in respect of the Bodily Injury …suffered by an Original Person." That, submits Mr Boswood, has the effect that unless there is a liability on Steamship to the Member for the injury (which there would not be if, for example, any damages payable to the Original Person was less than the member's deductible) no recovery could be made or, if made, retained under the Policy Wording. Mr Kendrick submits that Mr Boswood's submission places more weight on the word "obligations" than it can bear. He submits that Steamship owed "obligations" under the Club's Rules to investigate claims. But I agree with Mr Boswood that the relevant Rule (Rule 28) does not in ordinary language impose an obligation on Steamship to investigate claims on Members but bestows a right on Steamship to do so. In my judgment Mr Boswood's submission on the construction of the Wording is also right and, however obscurely, reflects what both Mr Cackett and Mr Martin said and I find was intended.

(iv) The definition of "PTD" was one of some width. It did not, for example depend on earning capacity. In the case of rig workers there might be a particular risk that an otherwise not very serious injury would prevent an Original Person from resuming arduous duties leading to a PTD payment within the definition. Mr Cackett was alive to the possibility of a "TTD" becoming a "PTD" and indeed the wording expressly addressed it in Clause 3 (see paragraph 53). The possibility, however, might well not be manifest for a considerable time as the Clause itself contemplates the elapse of 152 weeks before a determination might be made. That is of significance because on the evidence in the event the major if not the only source of alleged "overpayments" to Steamship is the number of claims which started as TTDs but came later to be classified as PTDs.

(v) Mr Cackett had a close involvement in drafting the wording yet nothing in it or otherwise required Steamship to include or provide figures for paid or incurred claims by Members on Steamship. The trigger for payment of the benefit was simply proof of the death or disablement of an Original Person: Clause 3.

(vi) "Original Persons" were not necessarily identifiable at inception. They included those who came to work on an Entered Vessel at any time during the period of the cover.

(vii) There was an aggregate excess and limit (in the event $1.5m and 17.25m respectively)."

28. Mr Kendrick challenges the judge's conclusion at (iii). Mr Boswood QC albeit seeking to uphold the judge's construction submits that it makes no material difference if his submission is not accepted. My view is that the judge was right in construing the policy wording as he has.
29. It is important to emphasise that he is not construing the wording in a way which means that claims are only payable once liability is established. He is construing the policy as cover for Steamship for the losses that it may incur where some liability is established. It is right to emphasise that there is no precise relationship between the payments of benefit and the liabilities of Steamship. Mr Boswood's argument only suggests that if there is no liability of Steamship i.e. where the member has no liability to the Original Person or if the liability falls below the deductible in relation to any claim from an Original Person, fixed benefits would have to be returned. He does not suggest that in relation to a claim which exceeds the deductible but falls below the fixed payment there should be any return of the money paid to Steamship.
30. I do not think that it is critical whether Mr Boswood is right in the above submission. On any view the wording makes clear that it is intended that there should be a close relationship between the amount of fixed benefits and Steamship's liability to its members.
31. When the first claims came in there followed considerable debate between Syndicate 957 and Steamship as to whether the fixed benefits were not "too generous". The details are set out in paragraphs 63 to 69 of the judgment of Langley J. The outcome was that on renewal in February 1996 agreement was reached that the benefit levels should be $1m and $2,250 from the inception of the 1995/6 cover.
32. On 4 March 1996 the lineslip was again renewed for 1996/7 but for individual declarations. Falcon was "renewed" with limits of $500K for death and PTD, and $1,750 for TTD. Marine Drilling was renewed with limits of $400K and $1,750. The details appear from paragraph 70 of the judge's judgment.

Excess of Loss

33. Reduction in the maximum death and PTD benefit level from $1m to $500K led to Steamship taking out excess of loss insurance for losses on members' claims which exceeded the relevant limit. The effect of this excess of loss insurance was that if the relevant limit in the Master Lineslip was $500K, Steamship would recover that sum from Syndicate 957 even where the claim by the member was less than $500K, but where a claim exceeded $500K Steamship obtained 100% of recovery from the combination of the Master Lineslip and the excess of loss cover. The judge records finding that Mr Johnston of Steamship was genuinely surprised when it was put to him in cross-examination that on this basis Steamship could not make a loss but only a profit on such claims. The judge found that it was not seen in those terms when the excess loss insurance was taken out.
34. In March 1996 Mr Cackett gave notice of his intention to leave Syndicate 957 and Mr Feasey took over the reins from then onwards. Mr Cackett established Centaur in Bermuda shortly thereafter.
35. The lineslip was further renewed in 1996/7 Mr Feasey dealing with the renewal. Mr Feasey, according to the judge, said in evidence that by that time he was comfortable that Syndicate 957 was not paying out more to Steamship than Steamship was paying its members. That belief was based on the exercise carried out with Mr Cackett in January and February 1996 which had resulted in the agreed reductions referred to above.

Sun Life and Phoenix

36. On 26 August 1996 Sun Life entered into an underwriting management agreement with Centaur providing Mr Cackett on behalf of Centaur with underwriting authority for reinsurance business. On 12 September 1996 Phoenix entered into an underwriting management agreement on substantially the same terms with Centaur.
37. The Master Lineslip was again renewed for 1997/8. It seems some limits were changed, further aggregate excesses were introduced but individual aggregate limits were substantially increased with an overall limit of $33.56m which was less than the total of the individual limits. The "qualifying period" for a TTD was reduced from 152 weeks to 104 weeks. Mr Feasey also introduced "franchises" the effect of which was to exclude from the cover losses which did not exceed the franchise figure until exhaustion of the franchise retention figure and to delay presentation of claims which did exceed the figure. For example, in the case of a TTD loss, the loss had to exceed the franchise level before it could be claimed so that if the weekly benefit level was $1,000 and the franchise $25,000 the claim could only be made if the TTD lasted for 25 weeks for more.

Reinsurance of Syndicate 957 by Sun Life and Phoenix 1997/98 year

38. Syndicate 957 had itself been reinsured in respect of its liabilities to Steamship under the Master Lineslip (and for other covers) by a reinsurance programme underwritten by a number of other syndicates at Lloyd's. In February 1997 the syndicate sought a quotation from Mr Cackett at Centaur for the 1997/98 year. Ultimately, in May 1997 Mr Cackett using American Phoenix as a front for Sun Life and Phoenix for 50% each entered into a number of reinsurances with Syndicate 957 in respect of the syndicate's liabilities under the Master Lineslip in respect of losses occurring between 20 February 1997 and 20 February 1998. The first reinsurance was to pay $95,000 excess of $5,000 on each and every claim. The other three reinsurances were to protect Syndicate 957 in respect of claims related premium adjustment payable by the syndicate on various layers of excess-of-loss reinsurances protecting the account (described as "burning costs" reinsurances). The details are set out in paragraphs 80-85 of the judge's judgment. At the beginning of 1998 Syndicate 957 sought further legal advice in relation to the validity of the insurance with Steamship. The details are set out in paragraphs 93-96 of the judge's judgment.

The Three Year Master Lineslip 1997/00 (the disputed policy)

39. The judge's description is not in issue and I adopt the material parts.
40. On 14 April 1998 Mr Absalom scratched, by way of a Declaration off the 1997/8 Master Lineslip, insurance for Steamship for the three 12 month periods 20 February 1997/8, 1998/9 and 1999/00. By April 1998 the 1997/8 cover had of course expired but the member declarations off the 1997/8 Master Lineslip were cancelled and rewritten to become member entries to this three-year Declaration. Also on 14 April 1998 a further Master Lineslip was agreed to accept Declarations from 20 February 1998 to 20 February 2000.
41. The Declaration described the Type of Insurance as "Personal Accident and/or Illness" and the Insured as Steamship. A Wording was attached in the same terms as the original Policy Wording (paragraphs 14-24 above) save that the Schedule of Compensation was "as declared" each declaration. The maximum amount recoverable was limited in respect of each individual member to 150% of original gross annual premium. Figures providing further limits were as set out in the schedule to the judge's judgment. There was an overall limit of $100,560,000 for the whole period. The "Information" was described as "as presented and noted by the Underwriter at the inception of the Original Member Entries." The weekly TTD benefit was limited to a maximum of 104 weeks in all. The list of Member Entries for each year recorded for 1997/8 in the case of Falcon alone that the cover was in respect of "losses occurring or first notified" to Steamship in that period. In all other Member entries it was in respect only of "losses occurring." The effect was that the original 1997/8 cover for Falcon was enlarged to cover claims notified in 1997/8 but arising in earlier years. Those claims were of course, already known at April 1998. The figures (at August 1998) in fact show estimates for such claims of some $4.5m.
42. For the years 1998/00 the weekly TTD benefit was reduced from $1750 to $1000 for all Member Entries and the death/PTD benefit was "equalised" at $400,000 for all Member Entries which involved an increase in the limits in 1997/8 in two cases and a decrease (from $500,000) in three cases. Mr Feasey assessed the benefit levels on the basis of "as if" figures between Steamship and the Syndicate. He had no figures to assess the comparative position between Steamship and its members.
43. Mr Feasey said that after the dispute which had led to the retrospective reduction in the TTD figure in 1996 the business had gone forward largely on the basis of an assumption that the level of benefits was such that Steamship would not be over-compensated "in the round" and the issue was what was the Syndicate prepared to offer and whether Steamship thought it worthwhile to buy what was offered at the price proposed. Mr Feasey also agreed that because Steamship should not be over-compensated it was prudent to "continue monitoring and adjusting" to minimise any mismatch. But that did not, (the judge found despite Mr Kendrick's submissions), involve a detailed exercise on Steamship's estimated reserves. Mr Feasey did not undertake and never suggested he had undertaken such an exercise. He said he relied on the 1996 exercise, the Falcon figures, Mr Johnston's letter, his knowledge and experience of PA business and the size of awards to justify his confidence that Steamship was not being over-compensated and would not be over-compensated by the benefit levels he was offering. He had of course reduced the levels further, particularly the TTD figure.
44. No witness called for Syndicate 957 could recall why the covers had been written for three years. There is no doubt that the Master Lineslip provided a significant part of the Syndicate's premium income. Those called for Syndicate 957 believed the terms were now such that there was no question of over-compensating Steamship and that it was valuable to secure the income for a period of time when the Syndicate was under pressure from outside competition.
45. For Steamship the evidence was that the enlargement came about because Steamship asked for it. Mr Johnston, head of underwriting at Steamship, said Syndicate 957 had requested a 3-year contract:

"It became very obvious to us that they were extremely anxious to place this contract. We therefore took the position that we might as well see what we can negotiate out of this to our advantage, and one of the things that occurred to me was that we might as well ask them whether they would be prepared to consider losses that were going to arise during the course of the year that had not as yet arisen."

46. Mr Johnston added that the Falcon cover had not burnt through by that time. Mr Johnston also said that he did not think it was for Steamship to calculate any appropriate benefit level and the Club did not do so. They were offered a cover and had to decide if it was worth buying. Mr Martin, the claims partner of Steamship, said the same. Steamship did not expect the protection to be the equivalent of a full reinsurance of Steamship's first retained layer and the question was would it provide a substantial protection. Mr Martin said his evaluation in 1998 would have been that a death claim would certainly cost more than $500K, a PTD would cost more than $500K and a TTD more than $1,000 a week.

The Sun Life and Phoenix Reinsurance 1998/00

47. In May 1998 Mr Cackett for Centaur agreed on behalf of Phoenix and Sun Life 50:50 to renew the four reinsurances of Syndicate 957. The contracts covered losses on declarations attaching in the period 20 February 1998 to 20 February 2000.
48. In March 1998 Mr Cackett for Centaur gave six months notice to Phoenix to terminate the underwriting management agreement between Centaur and Phoenix. The effect of that termination was that Centaur could write no new business for Phoenix after 1 October 1998 but would continue to deal with existing business with the authority of Phoenix. It is the writing of an extension to this policy by Mr Cackett on 29 October which is the subject of the authority point.


 


The Reliance "Top-Up"

49. On 29 June 1998 Mr Cackett provided Mr James with a non-binding indication for what has been referred to as the "top-up" or "sideways" cover of Steamship. The cover was to protect Steamship for the 3 years at 20 February 1997 in the event that the Master Lineslip (the disputed policy) total limits (overall or for individual members) were exhausted.
50. On 17 July 1998 Lloyd Thompson wrote to Mr Johnston with an indication for the top-up cover with a maximum limit of $40m. The indication came from Reliance National but as a front for Centaur and Mr Cackett. The premium quoted was $15m. It was Reliance that ultimately signed the slip on 30 September 1998. The details appear in the judge's judgment at paragraphs 115-120.
51. In February and March 1999 Steamship notified substantial claims on the top-up policy with Reliance essentially arising from the deterioration of the Falcon declaration under the Master Lineslip. Mr Cackett instructed that an audit be carried out and it was this audit which led indirectly to the proceedings.
52. The debate which ensued on what sums Steamship were entitled to recover under the disputed policy and the debate on figures which was continuing right up until judgment in the trial below, is set out from paragraphs 132-143 of the judge's judgment. The conclusion of the judge by reference to the figures and the evidence is to a large measure not challenged and it is right to set it out in full: -

"144. As I have said, the figures and the evidence and submissions about them leave considerable uncertainties but I will summarise the conclusions which I have drawn about them as a matter of probability:-

[Only the second and third sentences of (vi) are the subject of challenge by Sun Life's notice of appeal. The answer to that challenge is provided by Steamship in their supplementary note on the figures dated 27^th February 2003.]

i) Insofar as it is suggested that at any material time Steamship deliberately set out to make or appreciated it was making "a profit" I am entirely satisfied the suggestion would be wrong. Steamship saw the covers as providing a worthwhile contribution towards its overall exposures to members and did not expect to profit or to be "over-compensated", rather the opposite.

ii) There is no evidence to suggest that the TTD figure of $1000 a week was greater than the cost of the same claims by members. The probability is that it was less.

iii) The only basis on which the figures now show that Steamship has made a profit or been over-compensated is the inclusion of the recoveries from the excess of loss and Reliance top-up covers.

iv) The death benefit figure has generally been ignored in evidence, possibly because there were only about 5 death claims in each year.

v) The numbers of PTD claims which have arisen was unexpected and unforeseen by Steamship in 1998 when the relevant covers were agreed and for some time thereafter. It is the numbers of PTD claims (and the existence of the excess of loss and top-up reinsurances which covered them) which has led to any over-compensation.

vi) Both Steamship and Syndicate 957 honestly believed when the relevant covers were agreed in 1998 that the level of benefits had been set so as to eliminate any possibility of over-compensation for Steamship. Neither had any information to suggest the contrary and each could justify its belief on the information available and the history of reducing levels of benefit. In the case of Steamship that is so even with the knowledge of the excess of loss and Reliance top-up insurance it acquired. As stated I accept Syndicate 957 was unaware of those contracts.

vii) Even allowing for recoveries under the excess of loss and top-up contracts the estimated level of "over-recovery" in 1997 and 1998 and 1999 whilst substantial (paragraph 139) cannot, I think, be characterised as of a size such as to change the character of the transaction from insurance to gaming or a wager. Moreover there is probably some unknown balancing factor resulting from under-recovery on TTD claims."

Does section 1 of the 1774 Act render the disputed policy illegal and void?

53. The 1774 Act is entitled:

"An Act for regulating Insurances upon Lives, and for prohibiting all such Insurances except in cases where the Persons insuring shall have an Interest in the Life or Death of the Persons insured."

The Preamble states:

"Whereas it hath been found by experience that the making insurances on lives or other events wherein the assured shall have no interest hath introduced a mischievous kind of gaming."

Section 1 provides:

"From and after the passing of this Act no insurance shall be made by any person or persons, bodies politick or corporate, on the life or lives of any person or persons, or on any other event or events whatsoever, wherein the person or persons for whose use, benefit, or on whose account such policy or policies shall be made, shall have no interest, or by way of gaming or wagering; and that every assurance made contrary to the true intent and meaning hereof shall be null and void to all intents and purposes whatsoever."

Section 2 provides:

"And … it shall not be lawful to make any policy or policies on the life or lives of any person or persons, or other event or events, without inserting in such policy or policies the person or persons name or names interested therein, or for whose use, benefit, or on whose account such policy is so made or underwrote."

Section 3 provides:

"And … in all cases where the insured hath interest in such life or lives, event or events, no greater sum shall be recovered or received from the insurer or insurers than the amount of value of the interest of the assured in such life or lives, or other event or events."

54. I should deal at the outset with a point argued by Mr Boswood on the construction of section 1. He took us back to the 18^th and 19^th centuries and the context in which the 1774 Act was passed. Two things were of importance in that context. First, gaming and wagering outside the insurance context was lawful and enforced by the courts. That was so until the passing of the Gaming Act 1845. Second, throughout the 18^th and first half of the 19th Century it was believed that all insurance contracts including contracts of life assurance, were by their nature contracts of indemnity. Godsall v Boldero (1807) 9 East. 72 was decided on that basis and was only overruled by the Court of Exchequer Chamber in Dalby v The India and London Life Assurance Company (1854) 15 CB 364. Mr Boswood relied on the Marine Insurance Act 1745 and its preamble. He said that it was clear from the preamble that the mischief being aimed at by the act was the verbal formulations used to create a wager policy. The Act, he submitted, was not concerned with saying that an assurance could not be enforced where the insured had no interest in the ship or goods the subject matter of insurance; that was self evident anyway. Rather, its object was to prohibit wager policies, by specifying the various forms of words that could be used to create such policies and saying that the use of such words invalidated the contract.
55. Mr Boswood suggested that the same form of reasoning ought to apply to section 1 of the 1774 Act. Since life insurance was believed to be a contract of indemnity it went without saying that an interest in the subject matter was necessary to support such a policy, and the section was concerned with the form of policy i.e. that there should be no form of policy dispensing with proof of interest and no form of policy in the form of a gaming or wagering contract.
56. Mr Boswood submitted that 'interest' meant simply 'interest sufficient to prevent the policy being a wagering contract'. This submission enabled Mr Boswood to say that since Mr Kendrick, for Sun Life, made no case that the disputed policy was "gaming or wagering", that was in effect the end of the case.
57. In his written submissions Mr Boswood relied on a dictum of Mr A D Colman QC, as he then was, in The Moonacre [1992] 2 Lloyd's Rep. 501 at 509-510 where he said:

"Neither the words of any statute since 1845 nor any judicial announcement suggest that there should be a category of contracts of insurance which were not wagering contracts but which on account of the absence of an "insurable interest" should not be enforceable."

Mr Boswood in his oral submissions felt unable to support that dictum appreciating that there were a number of authorities which concentrated on the question whether there was "an insurable interest" apart from any concept of wagering.

58. I reject Mr Boswood's submission that because no-one in this case suggests that the policy was a wagering contract, a sufficiency of interest is demonstrated. The question whether the contract of insurance can be correctly described as "gaming or wagering" is a material factor. But as Mr Boswood in reality has to accept, once contracts of life insurance were held not to be contracts of "indemnity" that did not abolish the need for an interest in the life. Indeed the whole concern of the court in Dalby was as to whether the Anchor Life Assurance Company had "an interest" in the life of the Duke of Cambridge within section 1 of the 1774 Act, albeit the court concluded that the contract was not one of indemnity. There are furthermore dicta in the authorities which support the view that the starting point is the question whether there is interest not whether the contract is one of gaming or wagering; (see Lord Buckmaster in Macaura v Northern Assurance Company Ltd and others [1925] AC 619 at 631 and Lord Mansfield in Lowry v Bourdieu (1780) 1 Dougl 468 at 470).
59. The critical question is not whether the policy is a wagering contract but whether the disputed policy is an insurance made "on the life or lives of any person or persons or on any other event or events whatsoever" wherein Steamship has no interest.
60. It is convenient to deal at this stage with a second point on construction of the 1774 Act which arises from the amendment to section 2 by section 50 of the Insurance Companies Amendment Act 1973. Section 50 provided:

"(1) Section 2 of the Life Assurance Act 1774 (policy on life or lives or other event or events not valid unless name or names of assured etc. inserted when policy is made) shall not invalidate a policy for the benefit of unnamed persons from time to time falling within a specified class or description if the class or description is stated in the policy with sufficient particularity to make it possible to establish the identity of all persons who at any given time are entitled to benefit under the policy.

(2) This section applies to policies effected before the passing of this Act as well as to policies effected thereafter."

61. Section 2 of the 1774 Act has no direct application to the disputed policy since the person to benefit is Steamship and they are named. But the effect of section 2 in situations where the persons to benefit are "within a specified class or description" has an impact on the true construction of section 1. Section 2 as amended would appear to have no impact at all if the proper construction of section 1 was to render null and void policies on the lives of persons who were unidentified as at the date of the policy but would fall "within a specified class or description" of "sufficient particularity to make it possible to establish the identity of all persons who at any given time are entitled to benefit under the policy."
62. The words "within a specified class or description" are very wide words. Mr Kendrick would suggest that they must be confined to an identifiable group such as employees. I do not see why that should be so. The definition of Original Person in the disputed policy is very wide, but if one poses the question whether the "description" is of sufficient particularity to make it possible to establish the identity of all persons who at any given time would be entitled to benefit under the policy if the policy had been for the benefit of Original Persons, the answer seems to me to be that it would.
63. It follows, as it seems to me, that Parliament must be taken at least, following the amendment to section 2, not to have intended that section 1 would make null and void an insurance on lives of persons unidentified as at the date of the policy, but within a description such as that given for "Original Persons."
64. I now turn to the key issue – Steamship's insurable interest. "Interest" in the 1774 Act is undefined. Both in that context and in others it has been a concept which has proved difficult of precise definition. Thus MacGillivray on Insurance Law 10^th Edition when considering insurable interest generally says this at paragraph 1-11:

"Nature of insurable interest. Insurable interest may be described loosely as the assured's pecuniary interest in the subject-matter of the insurance arising from a relationship with it recognised in law."

The footnote to that definition says "see para. 1-74, post, and the definitions attempted in paras. 1-49 and 1-120, post".

65. Paragraph 1-49 says:

"Working definition. All previous editions of this work have provided the following "good working definition" applicable to all risks under the Life Assurance Act 1774: Where the assured is so situated that the happening of the event on which the insurance money is to become payable would, as a proximate cause, involve the assured in the loss or diminution of any right recognised by law or in any legal liability there is an insurable interest in the happening of that event to the extent of the possible loss or liability."

66. At paragraph 1-74 it is said:

""Pecuniary" really means no more than that the interest must be capable of valuation by a court, and this is necessary inasmuch as section 3 of the Act provides that the assured shall not recover more than the value of his interest at the time the contract was made."

At paragraph 1-75 it is said:

"Besides being capable of valuation, the interest must be of such a nature that the law will take cognisance of it. The assured must show that he will or may lose some legal or equitable right or be placed under the burden of some legal liability in consequence of the death of the person whose life is insured. A mere expectancy or hope of future pecuniary benefit from the prolongation of the life insured or of the fulfilment by him of moral obligations owed to the assured, are insufficient to sustain an insurable interest. If, however, the death of the life insured will involve the assured in a liability, it is no answer for the insurers to show that he will also derive some compensating benefit, since the contract is not one of indemnity and the insurers may not set off the assured's gain against his loss."

67. Section 5 of the Marine Insurance Act 1906 which codified the common law so far as Marine Insurance was concerned defined an insurable interest in the following way:

"1. Subject to the provisions of this Act every person has an insurable interest who is interested in a marine adventure.

2. In particular a person is interested in a marine adventure where he stands in a legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof."

68. The notes in the 10^th Edition of Chalmers Marine Insurance Act 1906 under section 5 include a reference to the famous dictum of Lawrence J when providing advice to the House of Lords in Lucena v Craufurd (1806) 2 Bos and PNR 269 at 302 where he said:

"Interest does not necessarily imply a right to the whole or part of the thing, nor necessarily or exclusively that which may be the subject of privation; but the having some relation to or concern in the subject of insurance, which relation or concern, by the happening of the perils insured against, may be so affected as to produce a damage, detriment, or prejudice to the person insuring … 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."

69. Lucena v Craufurd was concerned with insurance on certain ships and the advice of Lawrence J was to the effect that there was no insurable interest in the ships in that case. In the decision of the House of Lords in the speech of Lord Eldon he also dealt with insurable interest in these terms:

"I have in vain endeavoured however to find a definition of that which is between a certainty and an expectation; nor am I able to point out what is an interest unless it be a right in the property, or a right derivable out of some contract about the property, which in either case may be lost upon some contingency affecting the position or enjoyment of the party."

70. There has been some debate as to whether Lord Eldon's test is narrower than Lawrence J's, and as to whether Lawrence J's test, being contained only in an advice, should be rejected in favour of Lord Eldon's which was contained in a speech pronouncing the decision. Since Lucena v Craufurd was concerned with the insurance of property it is unnecessary to resolve that debate, but I do note that Lawrence J's test has been approved many times in later decisions (see for example Blackburn J in Wilson v Jones (1867) LR 2 EX 139 in a passage quoted later in this judgment at paragraph 88 and, more recently, Kerr LJ in Mark Rowlands v Berni Inns [1986] 1 QB 211 at 228).
71. The above demonstrate, I would suggest, that it is difficult to define insurable interest in words which will apply in all situations. The context and the terms of a policy with which the court is concerned will be all important. The words used to define insurable interest in for example a property context, should not be slavishly followed in different contexts, and words used in a life insurance context where one identified life is the subject of the insurance may not be totally apposite where the subject is many lives and many events.

Date for insurable interest and valuation

72. One other general point to make at this stage relates to the date at which an insurable interest must exist, and (where relevant) the date at which it must be valued. In an indemnity policy the relevant date is the date of loss. If the policy is not a valued policy, liability will also be assessed at the date of loss. Where the policy is a valued policy, that value will have been assessed at the date of the policy, and in the absence of fraud the value fixed by the policy will as between the insurer and the assured be conclusive of the insurable value of the subject intended to be insured whether the loss be total or partial (see section 27(3) of the Marine Insurance Act 1906).
73. In a life policy the date at which the insurable interest must exist is the date of the taking out of the policy. Furthermore, that is the date for valuing the insurable interest (see Dalby). In Godsall v Boldero a policy for the sum of £500 had been taken out on the life of the late Mr Pitt by the plaintiffs who were creditors of Mr Pitt. Lord Ellenborough CJ in the judgment of the court said:

"The event against which the indemnity was sought by this assurance, was substantially the expected consequence of his death as affecting the interests of these individuals assured in the loss of their debt."

In the result as the personal representatives of Mr Pitt had paid off the debt the court held that the sum of £500 was not recoverable under the policy.

74. Godsall v Boldero was overruled by Dalby. In Dalby the Anchor Life-Assurance Company had insured the life of the Duke of Cambridge in four separate policies – two for £1,000 and two for £500 each granted by that company to the Rev John Wright. Anchor wished to limit their liability on the Duke's life and took out a policy with the defendants for £1,000 by way of "counter insurance." Under an arrangement between Anchor and Wright, Anchor's liability under the policies they had issued on the Duke's life was subsequently extinguished or severely limited. The court held that a life assurance was a contract to pay a certain sum of money and not an indemnity; that the date at which an insurable interest should exist was the date when the policy was taken out so far as section 1 was concerned; that the date of valuation of that interest was the date when the policy was taken out; and, in the circumstances, even if liability under the original policies had been extinguished, Anchor were entitled to recover £1,000 on the "counter insurance".
75. It is convenient in this context to refer to Hebdon v West (1863) 3 B & S 579 which the judge in his judgment thought possibly inconsistent with Dalby. In that case a bank clerk had insured his employer's life with two insurance companies. The first policy was for £5,000 and the second for £2,500. The bank clerk had borrowed £4,700 which the employer had subsequently said would not be called in during his lifetime. In 1856 the bank clerk took out a policy on his employer's life with an insurance company for £5,000. In 1857 the debt having increased to £6,000, the employee effected a further policy of insurance for £2,500 with another insurance company. The employer died in 1861. The bank clerk recovered £5,000 under the first policy and paid that sum to the bank. The court decided that the bank clerk did not have an insurable interest by reference to the unenforceable promise not to call in the sum during the employer's lifetime. The court decided that the bank clerk's insurable interest in the life of his employer was simply by reference to the engagement to employ the bank clerk for seven years at a salary of £600 a year to the extent that such period remained at the time when the policy was effected. The court assessed the value of the insurable interest at £3,000 i.e. five years times £600 as at the date of the taking out of the first policy. The court held that the bank clerk could:

"only recover or receive upon the whole the amount of his insurable interest, and if he has received the whole amount from one insurer he is precluded by the terms of the third section of the statute from recovering or receiving any more from the others."

76. Langley J thought that Hebdon was inconsistent with the reasoning in Dalby. In MacGillivray on Insurance Law it is suggested that the judge's criticism of Hebdon may be unjustified in that it says:

"The assured in Hebdon failed to recover on the second policy not because he no longer possessed an interest worth £2,500 when the life dropped, but because he had already recovered more than his interest was worth when he took out the second policy. The question of multiple insurances did not arise in Dalby."

77. I think that by that sentence the authors mean that he had already "covered" more than his interest when he took out the second policy. It may be on this basis that the judge's criticism of the decision is not justified. Dalby and Hebdon are consistent on the following basis. The value of an interest at the time of taking out the policy is assessed on the maximum pecuniary loss that the assured could suffer on the death of the life assured. In Dalby that was £3,000; in Hebdon that was £3,000. Nothing in excess of those values could be recovered. In Dalby that led to recovery of £1,000, and in Hebdon that led to a result that since more than £3,000 had been covered by the first policy, there was no interest in taking out a second policy.
78. But, in the above decisions, one can see already a tension between (1) an insurance being intended to be an indemnity against loss; (2) an anxiety that insurance should not be used as a means of gambling or wagering on an event in which an insured may have no interest; and (3) an anxiety to see that insurers who receive premiums and make bargains in respect of those premiums pay on the bargains that they have made.
79. What is also clear from the above authorities, and from the authorities to which I am about to turn, are the principles which one sees reflected in section 26 of The Marine Insurance Act 1906 as applied to all forms of policy. Section 26 provides:

"(1) The subject-matter insured must be designated in a marine policy with reasonable certainty.

(2) The nature and extent of the interest of the assured in the subject-matter insured need not be specified in the policy.

(3) Where the policy designates the subject-matter insured in general terms, it shall be construed to apply to the interest intended by the assured to be covered."

80. When one examines the authorities therefore one sees that the court is concerned to analyse by reference to the terms of the policy what is the subject of the insurance; to analyse what insurable interest a person has in the subject of the policy; and to consider whether the subject "embraces that insurable interest" in the words of Blackburn J in Anderson v Morice (1875) 10 C.P. 609 at 622. Where on the wording of the policy the subject is not absolutely clear cut, it sometimes assists to identify the subject to ask what insurable interest the person has, but essentially the subject is defined by the words of the policy. It follows that in some cases the subject is so clear, that even when the insured can identify some insurable interest that it might have had, it will be held that the insured has failed to cover that interest by the policy. In other cases what is "embraced" within the subject of the policy is less clear-cut, and in those circumstances the court may be able to say that the insurable interest is embraced within the subject of the insurance. The different elements of subject, insurable interest, and value are separate but impact one on the other.
81. With the above in mind, one can place cases in groups. Group (1) are those cases where the court has defined the subject matter as an item of property; where the insurance is to recover the value of that property; and where thus there must be an interest in the property – real or equitable – for the insured to suffer loss which he can recover under the policy. Within this group are Lucena v Craufurd to which I have already referred. The subject was certain identified ships; the perils insured against were the loss of the ships; the Commissioners had no interest legal or equitable in the ships but a mere expectation. That expectation could not be insured therefore the subject did not embrace the insurable interest. Also within this group is Anderson v Morice (1875) 10 CP 609; (1876) 1 App. Cas 713. Rice was the subject matter of the policy; if uninsured the plaintiff would have suffered no loss from any destruction of the rice since they were never at the plaintiff's risk; the loss of profits might have been insured but were not. Therefore the plaintiff could not recover. In Macaura v Northern Assurance Company Limited and others [1925] AC 619 the subject matter of the insurance was identified timber owned by a company; a shareholder in the company had no interest in the timber whatever in that even without insurance the shareholder would suffer no pecuniary loss from destruction of the timber as such. Any loss suffered would have been as shareholder and his profits as shareholder were not the subject of the insurance. It was however recognised in Macaura that it would have been possible to so describe the subject of the insurance as to embrace the insurable interest in profits, and approval was given to Wilson v Jones (1867) LR 2 EX 139 to which I will return.
82. Group (2). These are cases where the court has defined the subject matter as a particular life of a particular person; and where the insurance is to recover a sum on the death of that person. In these cases the court has recognised an insurable interest in that life where a pecuniary loss flowing from a legal obligation will or might be suffered on the death of that particular person. In Godsall v Boldero, the limit recoverable was the actual loss suffered but post Dalby the fixed sum became recoverable provided that it did not exceed the maximum which might have flowed from the legal obligation measured as at the date of entry into the policy. Hebdon is also within this group.
83. Halford v Kymer (1830) 10 B & C 725 is a case which relates to a policy taken out on the life of a son. What was argued was that the father had a pecuniary interest in the life of his son having regard to the chance of the father being maintained in his old age. Bayley J is recorded as saying:

"The parish is bound to maintain him, and it is indifferent to him (the father) whether he be maintained by the parish or his son."

One wonders whether the same decision would be reached in the modern era but the decision is to the effect that there was no pecuniary interest in the life of the son in that there was no legal right to be maintained by a son.

84. Law v The London Indisputable Life Policy Company and another (1855) 1 K & J 223 was a case in which the plaintiff had purchased from his son a contingent legacy of £3,000, bequeathed to him if he should attain 30 years of age. The plaintiff applied to the defendant to insure the event of his son attaining the age of 30, some 20 months before the son's 30^th birthday. The agent for the company said that the insurance would have to be for two years. The son did attain 30 but died before the expiration of the two years. Following Dalby it was held that the father had a pecuniary interest in the life of his son when he took out the policy and that the value of the same was the £3,000 and thus the father was entitled to recover the £3,000 as well as having received the legacy bequeathed to the son.
85. Simcock v Scottish Imperial Insurance Company (1902) 10 The Scots Law Times 286. Lord Pearson followed Hebdon v West holding that the value in the life of an employee was limited to the one week period of notice. He therefore held that where the employer had taken out insurance with two different entities for the sum of £250, the employer was only entitled to recover one of them.
86. Harse v Pearl Life Assurance Company [1903] 2 KB 92. Insurance was taken out on the life of a mother by a son to cover funeral expenses. It was accepted by the son that the policy was illegal and void for want of insurable interest and the only question was whether the son could recover the premium. In that context the court held that the son did not have insurable interest in that there was no legal obligation to pay funeral expenses but as he was not in pari delicto he could recover the premium.
87. Group (3). There are then cases where even though the subject matter may appear to be a particular item of property, properly construed the policy extends beyond the item and embraces such insurable interest as the insured has. Wilson v Jones (1867) LR 2 EX 139 exemplifies this group and is I suggest an important decision. The plaintiff was a shareholder in the Atlantic Telegraph Company. He insured himself with the defendant under a form of marine policy in common form but filled up with marginal additions. Those marginal additions contained the following words:

"At and from Ireland to Newfoundland, the risk to commence at the lading of the cable on board the Great Eastern, and to continue until it be laid in one continuous length between Ireland and Newfoundland, and until 100 words shall have been transmitted each way … the ship, etc., goods, etc., are and shall be valued at £200 on the Atlantic cable, value, say on 20 shares, at £10 per share."

And also, written opposite to the clause,:

"touching the adventures, etc.," the words "it is hereby understood and agreed that this policy, in addition to all perils and casualties herein specified, shall cover every risk and contingency attending the conveyance and successful laying of the cable, from and including its loading on board the Great Eastern, until one hundred words be transmitted from Ireland to Newfoundland, and vice versa, and it is distinctly declared and agreed that the transmission of the said one hundred words from Ireland to Newfoundland, and vice versa, shall be an essential condition of the policy."

The attempt to lay the cable failed, through the cable breaking. The argument of the insurers included an argument that the subject matter of the insurance was the cable and that the plaintiff as a shareholder in the company had no pecuniary interest in the cable.

88. It was recognised by the court that the plaintiff as shareholder had no direct interest in the cable (see pages 144-145 in the judgment of Willes J, with which on this aspect all members of the court agreed). Willes J at 145 then said:

"The first question therefore is, what was the subject matter insured? Is this, as has been contended, an insurance on the cable, or is it an insurance of the plaintiff's interest in a share of the profits to be derived from the cable which was to be laid down? In one sense, indeed, it is an insurance on the cable; that is, it affects the cable, as an insurance on freight affects the ship. The state of the ship and freight are so connected that it is impossible that they should be dissevered, except in cases where the loss of freight is effected by the loss of the goods only, in which case it might equally be said that the insurance on freight is an insurance on the goods. But except in that sense, it will appear, when the language of the policy is examined, that the insurance is an insurance, not on the cable, but on the interest which the plaintiff had in the success of the adventure."

He then quoted the words already referred to and said:

"It is impossible to avoid arriving at the conclusion stated by Martin B., as the opinion of the Court below, that this was an insurance on the plaintiff's interest in the adventure."

89. In the judgment of Blackburn J at p. 150 he said:

"I know no better definition of an interest in an event than that indicated by Lawrence J., in Barclay v Cousins 2 East 544, and more fully stated by him in Lucena v Craufurd 2 B & PNR that if the event happens the party will gain an advantage, if it is frustrated he will suffer a loss. Now we must see whether the plaintiff was in this position. He was interested in a company which was about to lay down a cable across the Atlantic. If that event happened, there can be no doubt the owner of shares in the company would be better off; if it did not happen, there can be no doubt his position would be worse. It follows, then, equally without doubt, that if by proper words the parties have entered into a contract of insurance for that interest, the policy is good. Now, if they had stopped at the word cable, the plaintiff's interest would not have been correctly or sufficiently described, according to the principle of the case of McSwiney v Royal Exchange Assurance Company 14 QB 634, 646; 18 LJ (QB) 193; 19 LJ (QB) 222. Neither if they had said that it was the cable as shipped on board the Great Eastern, would it have been a sufficient description. But here they have used words as to which I will only say, that no one who looks at them fairly, and reads them in connection with the circumstances, can fail to see that the intention of the parties would be frustrated by such a construction as is contended for by the defendant."

90. Group 4 are policies in which the court has recognised interests which are not even strictly pecuniary. In relation to life policies there are policies on own life; policies on husband's life and policies on the life of the wife see e.g. Griffiths v Fleming and others [1909] 1 KB 805. But even in the case of property something less than a legal or equitable or even simply a pecuniary interest has been thought to be sufficient. In The "Moonacre" [1992] 2 Lloyd's Rep. 501 Anthony Colman QC (sitting as a Deputy Judge of the High Court) ruled that the insured, Mr Sharp, had an insurable interest in the boat the subject of the insurance. The boat was owned by a company which was 100% owned by Mr Sharp, but it was the two powers of attorney granted by the company to Mr Sharp giving him wide authority to enjoy and use the vessel exclusively for his own purposes that provided the insurable interest. The judge said:

"That was a valuable benefit which would be lost if the vessel were lost. The legal relation in which he stood to the vessel was that for as long as the powers of attorney remained he was entitled to use it for his own purposes and to exercise over it such control as he saw fit. His powers were such that he could even abandon it to the insurers in the event of a constructive total loss; a relation to the goods sometimes considered decisive on the issue of title to sue: …."

91. In Glengate-KG Properties Ltd v Norwich Union Fire Insurance Society Ltd [1996] 1 Lloyd's LR 614, the judgment of Neill LJ described the judgment of Mr Colman QC in The "Moonacre" as a "valuable judgment". Auld LJ was clearly less sure that the ruling was right, and what he said at 624 was:

"Nevertheless, Mr Falconer's reservations about enlarging the notion of insurable interest in relation to material damage cover made good sense to me, and they appear to reflect the present state of English law.

But where the insurance cover in issue is against some loss consequential on damage to property, there is no reason why there should be so close a legal relationship between the insured and the object damaged. The insurable interest is in the event insured against rather than in the object the damage to which causes that event. See MacGillivray & Parkinson on Insurance Law 8^th ed., p.54, par. 129; and Anderson v Morice, (1875) L.R. 10 C.P. 609, per Lord Chelmsford at pp. 722 and 723."

92. I have so far not referred to Deepak Fertilisers & anr v ICI Chemicals & anr [1999] 1 Lloyd's LR 387 on which Mr Kendrick placed great reliance. In that case there had been posed for the court certain questions all relating to whether ICI and/or Davy McKee (London) Ltd (Davy) were on certain assumed facts relieved from liability for the destruction of a methanol plant in India. One point taken by Davy, who were sub-contractors, was that they were co-insured under a policy taken out in relation to the period of construction of the work. Furthermore, Davy asserted that Deepak were obliged to make them co-insured in all policies of insurance effected in respect of the plant and that thus Davy should have been made co-insured under a fire policy which was taken out after the execution of the work finished.
93. Rix J had held that Davy had an insurable interest in the plant:

"As long as they are arguably responsible for damage to it. Since it was Deepak's case that Davy and ICI were responsible for the explosion, even though it occurred after a time which Deepak accept saw completion of the plant, there was no reason in principle why Davy and ICI should not be entitled to insure against their potential liability."

The Court of Appeal dealt with this aspect in the following way:

"65. In our judgment Davy undoubtedly had an insurable interest in the plant under construction and on which they were working because they might lose the opportunity to do the work and to be remunerated for it if the property or structure were damaged or destroyed by any of the "all risks", such as fire or flood. Thereafter Davy would only suffer disadvantage if the damage to or destruction of the property or structure was the result of their breach of contract or duty of care. In order to protect the contractor and sub-contractors against the risk of disadvantage by reason of damage or destruction of the property or structure resulting from their breach of contract or duty they would, in accordance with normal practice, take out liability insurance or, in the case of architects, professional indemnity insurance. We consider Mr Havelock-Allan's submission is well founded; what they cannot do is persist in maintaining an insurance of the property or structure itself. Two dates are critical. The commissioning of Deepak's plant was completed on Jan. 31 1992. Davy continued to work on the plant thereafter to rectify construction defects but, by Aug. 10, 1992, all known construction defects had been rectified and rectification work had been inspected. At the latest the construction of the plant was complete by Aug. 11. Thereafter, with effect from Aug. 11, 1992, Deepak transferred the insurance of the plant from the Marine-cum-Erection Policy (under which Davy and "other Contractors and Sub-contractors appointed from time to time" had been named as co-assured) to the conventional property insurance policy under which the existing ammonia plant was already insured (i.e. the "Fire Policy"). Davy was not named as a co-insured under this policy. Thus by the time the insurance of the plant was switched to the "Fire Policy", Davy was no longer bound to be prejudiced if the plant was damaged or destroyed by an insured peril.

66. Accordingly, we must differ from the approach adopted by the learned Judge. He held that he could see no reason why Davy (and ICI) should not have an insurable interest in the plant so long as they were arguably responsible in some way for damage to it. He posed the question:

Why should not an architect or any technical designer or constructor be able to insure himself against his liability for damages to a structure due to his fault, even though the structure fails after its completion?

67. They could, of course, do so. This would be by means of liability insurance. Even if Davy (and ICI) or any of the sub-contractors had been named in the subsequent "Fire Policy" they would not have been covered in respect of their breach of contract or duty under that policy. We therefore reverse the Judge's findings on this issue and hold that Davy had no insurable interest in the plant on Oct. 30, 1992, the date of the explosion, giving rise to Deepak's claims."

94. There are various points to make on Deepak. First, so far as the all risks policy during the currency of the contract period was concerned, an insurable interest even on property seems to go beyond a "legal or equitable" interest in the property. A sub-contractor's insurable interest on the judgments in Deepak flows from the pecuniary loss that he will suffer from the loss of the opportunity to do work if the plant was destroyed by fire. Second, Deepak recognises unsurprisingly that a sub-contractor has an insurable interest in his own liability for negligence which he can also insure. But third, in Deepak it was common ground that if Davy were co-insureds they would have a complete answer to the subrogated claim even if damage was due to their negligence. It was thus unnecessary for the Court of Appeal to analyse or deal with how if Davy as sub-contractor was a co-insured it had an insurable interest in the whole plant and thus how as a co-insured Davy would have an answer to any subrogated claim if the explosion had occurred during the period of construction, unless Davy's insurable interest during this period included Davy's liability in negligence or in contract. In the judgment reference is made to Petrofina (UK) Ltd v Magnaload Ltd [1983] 2 Lloyd's Rep. 91; [1984] 1 QB 127; Stone Vickers Ltd v Appledore Ferguson Ship Builders Ltd [1991] 2 Lloyd's Rep. 288 and National Oil Wells (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd's Rep. 582. No disapproval is expressed of those decisions; it is simply said that "in each case the insurable interest subsisted during construction and commissioning." Those decisions were themselves at first instance being respectively of Lloyd J, Mr Anthony Colman QC sitting as a Deputy Judge of the High Court and Colman J as he then became. Petrofina was however also approved in the Court of Appeal (save in one immaterial respect) in Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211. They have been followed in Hopewell Project Management Ltd v Ewbank Preece Ltd [1998] 1 Lloyd's Rep. 448 a decision of Mr Recorder Jackson QC (as he then was). Petrofina, Stone Vickers, and National Oil Wells were also extensively analysed and approved so far as material in the judgment of Brooke LJ in Co-operative Retail Services Ltd v Taylor Young Partnership & ors 74 Con LR 12 or Court of Appeal transcript 4 July 2000. That judgment was itself approved when the case went to the House of Lords [2002] UKHL 17. These decisions hold that persons in the position of sub-contractors have an insurable interest in the work or plant as a whole; the definition of that interest relied on in those authorities comes originally from a judgment in the Canadian Supreme Court, Commonwealth Construction Co v Imperial Oil (1976) 69 D.L.R. (3^rd) 558 which in terms recognised the insurable interest of sub-contractors "having its source in the very real possibility ("may") of liability, considering the close relationship of the labour performed by the various trades under their respective agreements …. ". They held further that sub-contractors can recover from insurers the full value of the works holding (where appropriate) the balance beyond their interest in trust for the owner. They further held most relevantly that sub-contractors can defeat a subrogated claim based on the sub-contractor's liability in negligence to the owner because the insurers were pursuing a claim in relation to the loss covered by the policy.
95. MacGillivray on Insurance Law 10^th Edition is critical of these decisions and indeed suggests Deepak has added force to the criticism [see para 1-155 to 1-157]. It may be as reflected in paragraph 1-159 of MacGillivray that the true answer is that the risk of being held liable for causing damage to property, will not by itself create an insurable interest in the property, but if there is a further legal link that interest may also be embraced within the subject of the insurance. I suggest that the question truly is one of construction. It may be more usual to cover liability with liability insurance. But there is no hard and fast rule and where the subject of insurance is intended to be and can properly be construed as embracing the insurable interest in relation to liability, there is no reason not to so construe it. The point is exemplified by the fourth point I make on Deepak by reference to the views of Stuart-Smith LJ on the 'fire policy'. The fact that you may have an insurable interest relating to liability does not necessarily mean that that interest will be covered by a policy identified by reference to a specific subject matter. If the insurance policy is simply taken out on the plant, as one would expect from a 'fire policy', post-construction period, such a 'fire policy' may not be construed to embrace the only insurable interest which Davy has. But that should be contrasted with the position where it is intended during the construction period that liability will be embraced.
96. The final point to make on Deepak is that I would suggest that the circumstances in Deepak were such that the court may have been more reluctant than in many cases to hold that such insurable interest as Davy had was embraced by the subject of the policy. The decision is not authority for any broader proposition such as it being impossible to cover the insurable interest of liability by virtue of a policy on property if the terms of the policy embrace the insurable interest.

Summary of the principles

97. The principles which I would suggest one gets from the authorities are as follows:- (1) It is from the terms of the policy that the subject of the insurance must be ascertained; (2) It is from all the surrounding circumstances that the nature of an insured's insurable interest must discovered; (3) There is no hard and fast rule that because the nature of an insurable interest relates 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 indeed properties or lives; (4) The question whether a policy embraces the insurable interest intended to be recovered is a question of construction. The subject or terms of the policy may be so specific as to force a court to hold that the policy has failed to cover the insurable interest, but a court will be reluctant so to hold. (5) It is not a requirement of property insurance that the insured must have a "legal or equitable" interest in the property as those terms might normally be understood. It is sufficient for a sub-contractor to have a contract that relates to the property and a potential liability for damage to the property to have an insurable interest in the property. It is sufficient under section 5 of the Marine Insurance Act for a person interested in a marine adventure to stand in a "legal or equitable relation to the adventure." That is intended to be a broad concept. (6) In a policy on life or lives the court should be searching for the same broad concept. It may be that on an insurance of a specific identified life, it will be difficult to establish a "legal or equitable" relation without a pecuniary liability recognised by law arising on the death of that particular person. There is however no authority which deals with a policy on many lives and over a substantial period and where it can be seen that a pecuniary liability will arise by reference to those lives and the intention is to cover that legal liability. (7) The interest in policies falling within section 1 of the 1774 Act must exist at the time of entry into the policy, and be capable of pecuniary evaluation at that time.

The terms of the disputed policy

98. It is common ground, and clearly right, that the policy in the instant case is a policy to pay fixed sums on the happening of certain events. It therefore falls within section 1 of the 1774 Act. But the fact that sums are payable on certain events does not in my view end the enquiry as to what the subject matter of the insurance is or the enquiry in particular as to whether the subject matter of the insurance embraces the insurable interest. Furthermore, it is not in my view a legitimate starting point to say that because normally such and such a type of risk would be insured in a certain way, therefore a different form of policy must be unlawful. Each case must depend on the precise terms of the policy under consideration. The questions are – what on the true construction of the policy is the subject matter of the insurance? Is there an insurable interest which is embraced within that subject matter? Is the insurable interest capable of valuation in money terms at the date of the contract? The question that will then arise under section 3 is whether the sum payable under the policy is greater than the value of the pecuniary interest valued as of the date of the policy?
99. In argument there was much concentration by Mr Kendrick on the fact that on the death of an Original Person a sum became payable to Steamship; much concentration on the fact that the identity of that Original Person might not even be known at the date when the policy was entered into; much concentration on the question of the interest that Steamship had in the life or health of any Original Person. What interest (it was argued) was there in the life of any Original Person in relation to whom liability of the rigger and a member was never established, for example? I have come to the view that that is to look at this policy through too narrow a perspective.
100. The disputed policy is not on any view simply a 'life' policy which pays Steamship on the death of a particular identified individual. The terms of the declaration, and the wording agreed, demonstrate that this was insurance covering a three year period. It was agreeing 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. Members are defined as owners and/or other persons interested in any entered vessel to whom the insured has obligations under its rules. One can see from the wording of the policy that the object of the policy was to cover Steamship for the losses it would suffer as insurer of its members under its rules. I emphasise this is not seeking to place a construction on the policy to the effect that sums were only payable once liability was established against a member and as against Steamship, but the policy was devised by its terms to compensate for those losses which over a three year period were bound to occur. The policy did so by reference to fixed sums payable on certain of the events, those events being within the general ambit of events for which members and thus Steamship would have to pay. Furthermore, by virtue of the construction which the judge put on the policy, with which I have said I agree, (see paragraph 28 above) Steamship would only be entitled to keep those sums paid as fixed sums where liability as between the member and the Original Person was in fact established.
101. If one asked the question whether Steamship had a pecuniary interest in covering losses over the three year period for which it may be liable, it seems clear that it would have and indeed that is not disputed. Did that interest exist at the time the policy was taken out? The answer is as in Dalby, Steamship had a legal obligation which might lead to substantial sums being payable. Was it capable of pecuniary evaluation? The answer is that it was, or at the least it was possible to say that the overall limit did not exceed the potential liability. Is the subject so specific that it does not embrace the interest? The answer in my view is no. I emphasise again the wording. The wording provides that "Original Persons" by reference to whom a fixed benefit must be paid, must be persons engaged on an "entered vessel". An entered vessel is one entered by a "member" of the club with Steamship during the relevant period in respect of any of the risks "enumerated" in the wording itself. A member has to be a person interested in any entered vessel and the person to whom Steamship "has obligations under its rules ….. in respect of the bodily injury ….. suffered by an Original Person". It does not seem to me to be an abuse of language to say that Steamship has an insurable interest in the lives and wellbeing of Original Persons as defined by the policy. There is thus no reason not to construe the subject of the disputed policy as embracing that insurable interest.
102. In my judgment, in agreement with the judge, I see no reason why the disputed policy should be held to be in violation of section 1 of the 1774 Act.

Section 3

103. Having identified the insurable interest embraced by this policy I find it difficult to see quite what argument Mr Kendrick can maintain on behalf of Sun Life.
104. The interest in persons and events the subject of this insurance which Steamship had, so far as I can see from the cases, has to be assessed on the worst case basis. In Dalby the value of Anchor's interest in the life of the Duke of Cambridge was assessed on the basis that Anchor might have had to pay the full sums due under the policies that they had issued. There was no suggestion that any discount to that value should be applied by reference to facts which could easily have been assumed as at the date of the taking out of the relevant policy i.e. that the policies might have been surrendered as they were. Furthermore, in cases in which the court has held that a creditor has an insurable interest in the life of the debtor, the value of the interest is again assessed on the worse case basis without any discount being given for the possibility that the insured may be repaid the debt and thereby obtain double recovery.
105. If that be the correct approach then what Sun Life have to show is that there was no possibility of Steamship's liability to its members reaching the limits under the disputed policy, those limits being $1m from any one event and a total limit of $100,560,000 in respect of losses over the whole period.
106. What Sun Life appear to be attempting to do is, with the benefit of hindsight, to examine whether Steamship is in fact recovering more than that for which it is liable under its policy with its members. In particular they seem to be indulging in an exercise which looks at that question not just by reference to the policy which is disputed, but by reference to the excess loss and top-up policies which Steamship also took out.
107. If this were a valued policy then, in the absence of fraud, the value fixed by the policy would, as between the insurer and the insured, be conclusive of the insurable value of the subject intended to be insured (see section 27(3) of the Marine Insurance Act). Once appreciated that value must be assessed at the time that the policy is entered into, and once appreciated that the assured is entitled to place such value on his interests as reflects the worse case scenario, I do not think that Sun Life have even begun to demonstrate that Steamship are seeking to recover an amount in excess of the value of the interest as at the date of the policy.
108. I should also add that even performing the calculations they do, it is only the existence of the excess-of-loss or top-up reinsurance that provides a factual case that Steamship are recovering in excess of their liabilities. In my view Hebden shows that if that provided an argument for anyone that Steamship could not recover more than the value of their insurable interest, it provided it to the excess-of-loss or top-up insurers and not Syndicate 957.
109. Thus, again in agreement with the judge, Sun Life gain no advantage from section 3.
110. I would accordingly dismiss the appeal on the insurable interest issue for the above reasons, and on the authority issue for the reasons given by Dyson LJ.

Lord Justice Dyson:

The issues arising under the Life Assurance Act 1774

111. I agree that this appeal should be dismissed. I add a few words of my own on the question of whether Steamship had an insurable interest in the Original Persons whose bodily injury and/or illness was the event on which payment under the policy depended.
112. It is not in issue that the insurance policy fell within the scope of section 1 of the Life Assurance Act 1774. It was not an indemnity policy in the strict sense, that is to say a policy under which the insurer was obliged to pay a claim only when the insured had suffered a loss. The subject matter of this policy was the contingency of bodily injury/illness of an Original Person tout court. Original Persons as defined were a broad class of persons. It was possible to say at the outset whether, if a person suffered a bodily injury/illness, he or she would belong to this class of persons. It was not, of course, possible at the outset to say who, if anyone, would in fact suffer such an injury/illness so as to come within the class of Original Persons.
113. It is obvious and not disputed that, if the subject matter of the policy had been the liability of Steamship members for the injury/illness of Original Persons, Steamship would have had an insurable interest in the subject of the policy. Mr Kendrick submits that contingency and liability insurance are fundamentally different from each other, so that the insurable interest sufficient to support one is not sufficient to support the other. Further, he submits that in the case of contingency insurance the insured must stand in a legal or equitable relation to the subject of the insurance. On the facts of this case, there is no such relation between Steamship and the Original Persons. In short, Steamship would have an insurable interest in the liability of its members for injury/illness sustained by persons who fall within the definition of "Original Persons"; but not an insurable interest in the well-being of such persons per se.
114. I accept that contingency and liability insurance are different forms of insurance. But I find it difficult to see why in principle Steamship's contingent liability to indemnify its members against their liability for bodily injury/illness to Original Persons is not sufficient to give Steamship an insurable interest in the well-being of those persons. It is a non-sequitur to reason that because (a) Steamship would have an insurable interest in the liability of its members to those persons, therefore (b) it cannot have an insurable interest in those persons themselves.
115. Waller and Ward LJJ have referred to some of the relevant authorities. A number of them concerned the question whether a subcontractor or supplier to a construction contract has an insurable interest in the entire project during the construction and commissioning stages. In National Oil Wells (UK) Ltd v Davy Offshore Ltd [1993] 2 LLR 583, the issue was whether a supplier had an insurable interest in the property after it had delivered its equipment. It was argued that the interest of a subcontractor in property other than what it supplies and constructs itself is not in the property, but in its potential liability to the owners of such property for loss or damage to it caused by its breach of contract or duty, and that for that reason it has no insurable interest in the property itself. Colman J referred to Canadian Construction Co v Imperial Oil (1976) 69 DPR (3^rd) 558 to which Waller LJ has already referred, and said

(p 609) that the Supreme Court was making the fundamental point that:

"… the sub-contractor, by reason of the terms of the sub-contract stood in that relationship to all the property insured that loss of or damage to such property caused by that sub-contractor's fault could give rise to liability on his part to the owners of the property. He therefore had sufficient relationship to the property to found an insurable interest in the subject matter of that property insurance policy."

116. At p 611, Colman J said:

"The suggestion that there cannot as a matter of law be an insurable interest based merely on potential liability arising from the existence of a contract between the insured and the owner of the property or from the assured's proximate physical relationship to the property in question, is in my judgment, to confine far too narrowly the requirements of insurable interest. There is nothing in the authorities which prevents such a relationship to the property from giving rise to an insurable interest in the property for the purposes of an insurance on property. In Stone Vickers v Appledore Ferguson Shipbuilders, sup., I sought to explain the identification of an insurable interest in such multi-participant projects in the passage at p.301 already cited. It is no doubt true that the conventional means of obtaining in the market insurance protection against such liability for property damage is to take out a liability policy and for the purposes of such policy there is no question that the insured would have an insurable interest in his potential liability. But the fact that he has an insurable interest for that kind of risk does not lead to the conclusion that he cannot have an insurable interest in the property itself for the purpose of a policy on property risks. The fact that the market does not offer such policies is neither here not there. What matters is whether, if such a policy were effected, the assured would have a sufficient relationship with the subject-matter to give rise to an insurable interest. In my judgment he would."

117. It is important to emphasise that the reasoning of Colman J and the Supreme Court was not that the supplier or subcontractor had an insurable interest in the whole of the property because they might lose the opportunity to do the work or supply the equipment and to be remunerated for it if the property were damaged or destroyed (see para 65 in Deepak Fertilisers v ICI Chemicals [1999] 1 LLR 387). Rather, they reasoned that the fact that the supplier or subcontractor might be liable for damage to the whole property was sufficient to give it an insurable interest in the whole property.
118. No reason has been advanced to justify the proposition that, as a matter of law, an insurable interest may not be sufficiently based on the existence of potential liability in the insured for the contingency which is the subject of the insurance. Decisions such as NOW v DOL are criticised at paras 1-156 to 1-159 of MacGillvray on Insurance Law 10^th edition on two principal grounds. First, it is said that they are difficult to reconcile with established principles which inter alia require that the subcontractors in question be able to demonstrate that they possessed a legal or equitable interest in relation to the contract works. Secondly, it is said that they confuse the distinction between insurances on property on the one hand, and product liability insurance on the other.
119. As regards the first point, none of the authorities which were cited to us states in terms that potential liability for damage to the property insured can only be covered by liability insurance. It is true that in Deepak, this court said that, after construction and commissioning of the plant had been completed, even if Davy had been named in the subsequent fire policy, they would not have been covered in respect of their breach of contract or duty under that policy, because they would have had no insurable interest in the plant. But as against that, no doubt was expressed as to the correctness of any of the decisions mentioned by Waller LJ at para 94 of his judgment, or more particularly the reasoning on which they are based. The existence of a legal or equitable interest in relation to the contract works forms no part of that reasoning.
120. As for the "confusion" between the two types of insurance, I refer to the fallacy that I mention at para 114 above. Although the two types of insurance are different in character, it does not follow that an insurable interest that is sufficient for the purposes of one may not also be sufficient for purposes of the other. The so-called "confusion" is not, in my view, a reason for holding that the potential liability for damage to property may not give an insured a sufficient insurable interest in the property itself.
121. It is difficult to reconcile all the authorities. But it is necessary to bear in mind the words of Brett MR in Stock v Inglis [1884] 12 QBD 564, 571:

"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."

122. This general approach is not furthered by drawing subtle distinctions which serve no useful purpose. I can see no useful purpose in holding that a contractor has an insurable interest in plant (of which he supplies only a small component) up to the time of completion and commissioning, but not thereafter. On the facts of a case like Deepak, the subcontractor's commercial interest in the plant as a whole during the construction and commissioning stage lies at least as much in his potential liability for damage caused to the plant by his breach of contract and duty as in his interest in not losing the opportunity to do the work and be remunerated for it if the plant is damaged or destroyed by any of the risks covered by an all risks policy.
123. Unless compelled by authority to do so, I would reject the submission that, as a matter of law, an insurable interest in a contingency based on an insured's potential liability for that contingency cannot be covered by a policy on life properly framed so as to embrace that insurable interest. I do not believe that any authority requires that submission to be accepted. I would, therefore, uphold the decision of the judge on the insurable interest issue.
124. I would add that the decision in Dalby v The India and London Life Assurance Company (1854) 15 CB 365 does not sit easily with Mr Kendrick's submissions on this issue. In that case, Anchor life Assurance had granted four life policies to a total value of £3,000 to Rev Wright on the life of the Duke of Cambridge. Several years later, Anchor "being desirous to secure and indemnify themselves to the extent of £1,000 against their liability for the £3,000" took out a policy with the defendants for £1,000 "by way of cross or counter-assurance to that amount" on the life of the Duke. Subsequently, Rev Wright surrendered the four policies. On the death of the Duke, Anchor claimed the £1,000 from the defendants. At first instance, the claim failed. The appeal was allowed. Parke B said (p 386): "At the time this policy was subscribed by the defendants, the Anchor Company had unquestionably an insurable interest to the full amount [sc £1,000]". The significance of this statement is clear enough. This "counter-insurance" was on the life of the Duke. It was not a liability insurance. It was not a reassurance of Anchor's liability to pay. As Parke B stated at p 387, the contract (commonly called life assurance) when properly considered was a "mere contract to pay a certain sum of money on the death of a person". This species of insurance "in no way resembles a contract of indemnity". Accordingly, it was a contract to which the Life Assurance Act 1774 applied. It is difficult to see how Anchor had a legal or equitable interest in the life of the Duke. It had a potential legal liability to pay under the four policies, and that potential liability was sufficient to give it an insurable interest in the life.
125. However that may be, for the brief reasons that I have given, I would dismiss the appeal on the insurable interest issue. I do not wish to say anything on the section 3 issue.

The Authority Issue

The facts

126. By an agreement dated 3 September 1996, Sun Life Assurance Company of Canada ("Sun Life") appointed Centaur Underwriting Management Limited ("Centaur") to act as its underwriting agent in respect of a portfolio of accident and health reinsurance contracts with effect from 1 October 1996. By an agreement dated 19 September 1996, Phoenix Home Life Mutual Insurance Company ("Phoenix") appointed Centaur to act as its underwriting agent in respect of a portfolio of accident and health insurance or reinsurance contracts with effect from 1 October 1996. It was agreed between Centaur, Sun Life and Phoenix that Sun Life and Phoenix would split every risk on a 50/50 basis. Centaur had been established by John Cackett in 1996. In 1997, Centaur underwrote four reinsurance contracts on behalf of Sun Life and Phoenix protecting Syndicate 957 in respect of various liabilities under the Master Lineslip Policy for the year 1997/98.
127. On 16 March 1998, Centaur gave Phoenix notice that it was terminating its appointment with Phoenix as from 19 September 1998. The date of termination was later amended to 1 October 1998. On 5 May 1998, Mr Cackett (acting on behalf of Centaur) agreed as agent for Phoenix and Sun Life to renew the four reinsurances of Syndicate 957. The period of reinsurance was in respect of losses occurring on declarations attaching during the period 20 February 1998 to 20 February 2000 "subject to annual re-signing". The slips identified the "Reinsurers participating hereon as '50% Sun Life Assurance Company of Canada' and '50% Phoenix Home Life Mutual Insurance Company'".
128. On 17 August 1998, Centaur sent the Syndicate a letter concerning the termination of its underwriting agreement with Phoenix, and enclosed a "newsletter" which stated:

"Centaur … have given notice to Phoenix … to terminate their Underwriting Agreement to take effect from 1^st October 1998.

From the 1^st October 1998 Centaur are pleased to offer 100% Sun Life … as our sole Principal …"

129. On 26 August, Phoenix itself sent a letter inter alios to the Syndicate stating:

"Effective October 1, 1996, Phoenix Home Life Mutual Insurance Company and American Phoenix Life and Reassurance Company entered into agency agreements/binding authorities with Centaur Underwriting Management Ltd. We hereby advise that these agreements will be terminated effective October 1, 1998.

We confirm that we shall continue to honour all obligations in respect of business accepted prior to October 1, 1998 by Centaur on our behalf."

130. On 20 October, Monument Insurance Brokers Limited ("Monument") prepared a further reinsurance presentation on behalf of the Syndicate in respect of the three year period 20 February 1998-February 2001. At all material times, Monument acted as brokers for the Syndicate. Centaur agreed to extend the four reinsurances. This was done in each case by an endorsement and, later, evidenced by a cover note addendum. In each case, the endorsement was button stamped and initialled by Mr Cackett on 29 October. Each endorsement provided:

"It is hereby noted and agreed that with effect from inception the period is amended to read as follows:

PERIOD: Losses occurring on declarations attaching during the period 20^th February 1998….to 20^th February 2001. Subject to Annual Re-signing.

All other terms and conditions remain unaltered".

The endorsement also provided (in manuscript) that the premium was "$… payable in 12 equal quarterly instalments in arrears adjustable annually in accordance with original premium formulae". The premium figure was inserted in each case. For policy M98 0060, it was $5.4 million. The figure for each of the other three policies was £2.7 million.

The issue

131. It is common ground that, to the knowledge of the Syndicate, Centaur's authority to underwrite for Phoenix was terminated as from 1 October 1998, so that Centaur had no authority to extend the reinsurance contracts into the period 20 February 2000 to 20 February 2001 on behalf of Phoenix. Until a late stage of the proceedings, the Syndicate contended that Phoenix was bound by the reinsurance contracts made on 29 October 1998, but that contention has been abandoned. The Syndicate continues, however, to advance its alternative submission that these contracts were made by Centaur so as to bind Sun Life as to 100%. Sun Life accepts that it was bound as to 50%. It is common ground that Centaur had authority to bind Sun Life as to 100%. The issue which divides the parties is whether Centaur did in fact do so.

The decision of the judge

132. The judge dealt with the point at paragraph 130 of his judgment in these terms:

"130. Mr Cackett agreed with Mr James and Mr Absalom that he would not have written the endorsements unless he believed he had full authority to do so. But he said that when he wrote them he "did not know … that I actually addressed my mind to exactly who I was underwriting for … I was underwriting on behalf of Centaur. I do not know that I actually would have considered whether it was for Sun or Phoenix at the time". By 29 October Centaur's agreement with Phoenix had terminated to the knowledge of both Mr James and Mr Absalom. The cover to February 2000 had been written prior to termination on behalf of Phoenix and Sun Life equally. The extension to 2001 was written after termination. Mr Cackett thought he might have had it in mind to re-sign the cover in February 1999 as 100% Sun Life. Despite, perhaps tentative, submissions and evidence to the contrary the extension was plainly a new contract and cannot be described as "a variation" or a run-off of an existing contract even if that was a material distinction. The only sensible construction that I think can be put on these events is that, as Mr Fenton submitted, Mr Cackett had no authority to write any new business on behalf of Phoenix and so could not bind Phoenix to the 2000/1 extension for 50% or at all, but equally that, as Mr Kendrick submitted, he was not in fact writing the extension so as to bind Sun Life 100% even if arguably he would have had authority to do so. The endorsement purported to extend an existing cover written for both companies and as Mr James said, and is plainly right, had Mr Cackett been writing 100% for Sun Life that would have been clear in the documentation when in fact the opposite is the case."

At the material time, Mr James was a director of Monument, and Mr Absalom a member of the Syndicate.

Submissions on behalf of the Syndicate

133. Mr Julian Flaux QC submits as follows. The judge was right to hold that (a) the extension of the reinsurance policies to 20 February 2001 was a new contract, and not a variation or "run-off" of an existing contract, and (b) Centaur had no authority to write new business for Phoenix after 1 October 2000. It follows that there could be no question of Centaur writing the extension of the reinsurance contracts 50% for Sun Life, and 50% for Phoenix. By the 29 October, both Sun Life and the Syndicate knew that the underwriting agreement between Phoenix and Centaur had been terminated with effect from 1 October, and Centaur had actual authority to write the extension 100% for Sun Life. It was not suggested (nor could it have been) that Centaur was acting for any other principal than Sun Life, or that it was acting as a principal itself or in any capacity other than as an underwriting agent for either Sun Life or Phoenix or both of them. There was, therefore, no basis for concluding that Centaur was not writing the extension so as to bind Sun Life for 100%. There was no other capacity in which it could have been writing the extension, since it was plainly writing in its capacity as an agent, and as an agent who had authority to write an extension 100% on behalf of Sun Life.
134. Mr Flaux submits that the words "Subject to Annual Re-signing" show that there was a separate contract for each of the three years. He accepts that the effect of the agreement of May 1998 was that Sun Life and Phoenix became contractually committed to the two years 20 February 1998 to 20 February 2000 (even though the endorsements signed on 5 May 1998 included the words "subject to annual re-signing"). But he relies on these words in the October endorsements as supporting his argument that there were separate contracts for the third year and that Centaur's principal(s) for the third year was/were not necessarily the same as its principals for the first two years.
135. Mr Flaux makes the point that there was no discussion in October as to the identity of the principals on whose behalf Centaur was acting. Monument did not purport to ask Mr Cackett to procure cover for only 50% of the risk, on the footing that it would obtain the remaining 50% elsewhere. Accordingly, viewed objectively, what Monument was seeking and Centaur was offering to provide was 100% cover for the third year, and, again objectively considered, that could only be provided by Sun Life.
136. Finally, Mr Flaux criticises the judge for taking into account Mr Cackett's state of mind in reaching his conclusion on this issue. The state of mind of the agent in circumstances where the agent has actual authority is immaterial. All that matters is that the agent acts in his capacity as an agent (as Centaur did), and that he acts within his authority (as Centaur did). Mr Flaux relies on Hambro v Burnand [1904] 2 KB 10, 26:

"It is enough for us to say that it appears to be well settled in English law that the liability of a principal on a contract entered into by his agent within the terms of his authority cannot be affected by the unknown motives by which the agent was actuated in making the contract."

Conclusion

137. I am unable to accept these submissions largely for the reasons advanced by Mr Kendrick. It is clear (and indeed common ground) that the issue must be determined objectively on the basis of the endorsements stamped and signed by Mr Cackett on 29 October, judged against the background of facts known to the parties at the time. Mr Flaux submits quite correctly that the motives, beliefs and uncommunicated intentions of Mr Cackett in relation to the authority question were irrelevant. But in my view, although the judge referred to Mr Cackett's state of mind, it is clear that he did not rely on it in order to reach his conclusion. His reasoning was simply as follows: (a) Centaur had no authority to bind Phoenix to the 2001 extension for 50% or at all; but (b) Centaur did not purport to, and therefore did not in fact, write the extension so as to bind Sun Life 100% even if it had authority to do so. Mr Cackett's state of mind formed no part of the judge's reasoning. It follows that Hambro v Burnand is not material in the circumstances of this case.
138. In my judgment, it is clear on the face of the 29 October endorsements themselves that they were not intended to increase Sun Life's line from 50%. They were merely intended to extend the period of the existing contracts by one year to 20 February 2001 and to increase the premium accordingly. Thus, for example, the premium for policy M98 0060 was increased by $1.8 million to $5.4 million. The increased amount was the premium payable by 12 equal monthly instalments over the three year period. As Mr Kendrick points out, if it had been intended to increase Sun Life's share of the cover to 100%, one would have expected express words to that effect to be used, and the format of the documentation would have been different. Instead of converting the existing contracts from two to three years, one would have expected a fresh policy to be issued for the third year, naming Sun Life as the sole reinsurer and identifying the premium referable to that year. But rather than doing this, the parties agreed to use documents which expressly stated that the period was to be amended "with effect from inception" to cover "losses occurring on declarations attaching during the period 20^th February 1998…to 20^th February 2001". The reference to the amendment being from "inception" (i.e. from 20 February 1998) is entirely at odds with the notion that during the third year the policies were on behalf of Sun Life alone, and as to 100%, when previously they had been made on behalf of Phoenix and Sun Life on a 50:50 basis.
139. The sentence "all other terms and conditions remain unaltered" is another strong pointer against Mr Flaux's argument. He submits that this is no more than a reference to the detailed terms and conditions of the previous policies, and that it does not identify the parties on whose behalf the new reinsurance cover was being purportedly written or the proportions of the risk that they were purporting to underwrite. I see no reason to construe the sentence in the restrictive way for which Mr Flaux contends. It was undoubtedly a term of the previous policies that Sun Life and Phoenix were the reinsurers and that they were each writing 50% of the cover, and no more. Even if it is questionable whether the identity of the parties was a term or condition of the previous policies, I cannot see why the percentage cover being written by those parties was not a term or condition of the policies. In my view, it was plainly a term or condition of the four reinsurance contracts made in May 1998 that Sun Life and Phoenix were writing 50% each.
140. I do not accept that the words "subject to annual re-signing" assist in the resolution of the issue. The significance of these words was explained in the report of Mr Jim Hunt (the Syndicate's expert witness) in these terms:

"50. The annual re-signing provision (a procedure peculiar to Lloyd's) would have been inserted in the reinsurance slips merely to enable Syndicate 957 to allocate the premiums and recoveries to different years of account (as required). The Defendants' reinsurance contracts did not provide for mid-term cancellation or provide for the terms and conditions to be revised mid-term for any reason (unless by mutual agreement), and the inclusion of an annual re-signing provision did not change that position. The annual resigning provision did not require John Cackett to take any action and I understand that none was ever taken."

141. A problem arises because at Lloyd's each syndicate writes business for one year only. It follows that provision needs to be made to cater for the situation where a risk is undertaken for more than one year, since the members of the syndicate may change from year to year. The elaborate nature of the procedure adopted was described by Staughton LJ in Baker v Black Sea and Baltic General Insurance Co Ltd [1996] LRLR 353, 358. It is not necessary to examine this, since in my view the fact that the parties used the words "subject to annual re-signing" sheds no light on the question at issue. It is common ground that on 29 October 1998, agreements were made whereby reinsurance cover would be provided for the third year, and that, through the agency of Centaur, Sun Life was a party to those agreements. The question is whether Sun Life agreed to write 50% or 100% of the risk. The fact that, for the reasons given by Mr Hunt, the words "subject to annual re-signing" were inserted in the endorsement does not help to resolve that question.
142. Stripped to its essentials, Mr Flaux's argument is that, because Centaur no longer had authority from two principals, (and because this was known to the Syndicate), it must have committed its remaining principal to a larger portion of the risk than previously. But as Mr Kendrick says, this is simply a non-sequitur. Centaur did have authority to bind Sun Life as to 100%, and could therefore have done so. But in order to determine whether it did in fact do so, it is not sufficient merely to establish that it had the requisite authority. It is necessary to see whether it in fact exercised that authority. The starting point for this inquiry is the language of the instrument by which the principal became bound to the third party by the acts of the agent. Centaur did not purport to bind Sun Life to 100% cover. For the reasons that I have already given, there is nothing in the endorsements of 29 October which indicates that Centaur exercised the authority vested in it to bind Sun Life 100%, and there are a number of features of the documents which point strongly the other way.
143. For these reasons, I conclude that the judge reached the correct conclusion on the authority issue, and did so for the right reasons. I would dismiss the Syndicate's appeal on this issue.


 


Lord Justice Ward :

Some preliminary observations.

144. First, there is no merit in this appeal. The facts are quite remarkable. For some time prior to 1994, the Lloyd's Syndicate 957 had satisfactorily insured Steamship's liabilities to its members under its Rules, including the members' liabilities for loss of life, personal injury or illness of persons occurring on or in relation to vessels entered with Steamship. In 1994 Lloyd's announced changes to its Risk Codes for the 1995 year of account, the effect of which was that for the purposes of reinsurance, the carve-out from liability policies of the bodily injury and illness-related elements could no longer be classified for audit purposes as personal accident insurance. This presented obvious difficulties for the Syndicate but would have had no direct effect at all on Steamship. The Syndicate wished to preserve the substantial premium income it enjoyed and, with Mr Cackett as one of the moving spirits, set about devising a new scheme which would have enabled it to treat the insurance as short-tail personal accident insurance and not long-tail liability insurance. Steamship was persuaded to change its traditional tried and tested liability reinsurance for this new-fangled concept. Sun Life came on board as re-insurers for 1997/8 and renewed for 1998/2001 (though there is a separate issue about the later participation of Phoenix). Centaur wrote the reinsurance on their behalf. Mr Cackett was by then with Centaur. When the re-insurers began to find the business not as profitable as they had hoped, they raised their clean hands and cried foul. They sought to avoid the obligations they had undertaken to the Syndicate by alleging, inter alia, the lack of an insurable interest. They wanted their money back. When Steamship began its proceedings against the Syndicate, the response was that the same point would have to be taken in their defence in case Sun Life and Phoenix were correct. Although it is true to say that the Syndicate sit in the middle of this litigation wringing their hands in embarrassment, leaving Sun Life and Phoenix to do the dirty work, we nonetheless have the extraordinary position that those who devised the plan to serve their ends now seek to avoid their liability under it on the basis that they failed to overcome the obstacle staring them in the face at all times, and known to be an obstacle, that Steamship might not be able to show they have an insurable interest in the subject-matter of this insurance. Who, I wonder, was the splendid humorist who codenamed this "conceptual proposal" "Nelson"? He or she presciently and ironically must have appreciated that it might only work if one turned the blind eye. If the re-insurers and insurers are now right, the only one to lose will be Steamship. It is hardly an attractive stance for insurers and re-insurers to adopt. Perhaps the outsider may be permitted to say that where the contract of insurance is supposed to be one requiring the utmost good faith from all parties, this stance betrays the moral bankruptcy of the insurers' and re-insurers' position.
145. Secondly, the approach of the court in these circumstances has been declared by Brett M.R. in Stock v Inglis [1884] 12 QBD 564, 571 to be:

"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 law will allow it, to find in favour of an insurable interest"

146. Thirdly, as further encouragement to stretch the law to its limits, the editors of Chalmers' Marine Insurance Act 1906, 10^th Edition, p.11 write that:

"The definition of 'insurable interest' has been continuously expanding, and dicta in some of the older cases, which tend to narrow it, must be accepted with caution."

I see the sense of that. Insurance business is no longer conducted in the coffee shop. It is now a massive market and, for contracts between commercial men to be respected, the law should march with the times. I wish, therefore, to go as far as I possibly can to find for Steamship.

The Life Assurance Act 1774.

147. The Act applies in this case. The long title describes it as:-

"An Act for regulating Insurances upon Lives and for prohibiting all such Insurances except in cases where the Persons insuring shall have an Interest in the Life or Death of the Persons insured."

The preamble reads:-

"Whereas it has been found by experience that the making insurances on lives or other events wherein the Assured shall have no interest hath introduced a mischievous kind of gaming." (Emphasis added)

Section l provides:-

"From and after the passing of this Act no insurance shall be made by any person or persons, bodies politick or corporate, on the life or lives of any person or persons, or on any other event or events whatsoever, wherein the person or persons for whose use, benefit or on whose account such policy or policies shall be made, shall have no interest, or by way of gaming or wagering; and that every insurance made contrary to the true intent and meaning hereof shall be null and void to all intents and purposes whatsoever."

Section 2 requires that the names of the interested persons must be inserted in the policy and Section 3 provides:-

"And … in all cases where the insured have an interest in such life or lives, event or events, no greater sum shall be recovered or received from the insurer or insurers than the amount of value of the interest of the insured in such life or lives, or other event or events."

148. I would have thought that there is no doubt about the purpose of the Act. The object was said by Tindal C.J. in Paterson v Powell (1832) 9 Bing. 320, 327, to be:-

"To prevent gambling under the form and pretext of a policy of insurance by parties who have no interest in the subject matter of such assurance."

It is, however, only gaming policies which constitute the "mischievous kind of gaming": gaming in general remained lawful and wagers were enforceable at that time and so remained until 1845.

149. Mr Boswood Q.C. submits, to quote from paragraph 15(5) of his skeleton argument:-

"Since the appellants disclaim any assertion that the P.A. Cover is an insurance by way of gaming of wagering, their appeal based on the 1974 Act must, therefore, necessarily fail."

150. I do not accept that submission. I am prepared to accept the view of Grose J. in Good v Elliott (1790) 3 T.R. 693, 696:-

"The statute evidently meant that every insurance on lives, or on any event, in which the assured has not an interest, shall be void, whether such insurance be effected in the form of a policy, or by way of gaming or wagering." (Emphasis added.)

That is consistent with the long title which prohibits insurances except where the person insuring has an interest in the life of the insured.

151. The correct position seems to me to be this. It is the nature of a wagering contract that:-

" … neither of the contracting parties [has] any other interest in that contract than the sum or stake he will win or lose,"

per Hawkins J. in Carlill v The Carbolic Smoke Ball Company [1892] 2 QB 484, 491. A policy would therefore necessarily be written "interest or no interest". Such a policy will be null and void. Yet there is no prohibition against insurances where the insurer does have an interest in the life of the insured. In this respect I would follow Parke B. in Dalby v The India and London Life Assurance Co (1854) 15 C.B. 365, 388, a leading case on the subject which I will need to consider further:-

"This contract is good at common law, and certainly not avoided by the first section of the l4 G. 3, c.48. This section, it is to be observed, does not provide for any particular amount of interest. According to it, if there was any interest, however small, the policy would not be avoided." (Emphasis added.)

Indeed, as I understood the exchanges with Mr Boswood during the course of argument he accepted that the insured had to show he had some interest in the life insured. The only question was what kind of interest sufficed? His answer is a genuine or reasonable expectation of some harm from some of the events covered by the policy.

152. For me to find my answer, I need to undertake the following enquiries.

(1) What is the subject matter of this policy?

(2) If and insofar as this is a policy of life insurance, how far do the authorities go in defining the necessary insurable interest?

(3) Can the authorities on marine/non-marine insurance be used to clarify the nature and extent of the insurable interest for life and personal accident insurance?

(4) How far do the authorities go in restricting or expanding the nature and extent of the insurable interest for marine/non-marine insurance?

(5) Does this policy embrace the interest which the insurers have?

The subject matter of this policy

153. This is a policy for "personal accident and/or illness insurance". The "interest" is described as:-

"Subject to all its definitions, terms, conditions and exclusions this insurance is to pay benefits to the insured calculated in accordance with the Schedule of Compensation contained in the Wording for death consequent upon Bodily Injury; Permanent Total Disablement or Temporary Total Disablement consequent upon Bodily Injury and/or Illness … all as more fully defined in the Wording in respect of member entries as Schedule attached."

The Wording is plain:-

"WE, THE UNDERWRITERS, hereby agree with the Insured, to the extent and in the manner herein provided, that if an Original Person sustains Bodily Injury and/or Illness we will pay to the Insured in accordance with the terms and conditions of this Insurance and according to the Schedule of Compensation after the claim has been substantiated under this Insurance."

154. In my judgment the meaning is not open to much argument. The subject matter of this insurance is the death, bodily injury or illness suffered by an Original Person. It is, therefore, an insurance on the life of an Original Person, or on the event of the bodily injury or illness of an Original Person. It is in that sense contingency insurance, the contingency or the trigger to the entitlement to the benefits payable under the policy being the death, bodily injury or illness of the Original Person. The contingency or trigger is not Steamship's liability to indemnify its member on the happening of that death or injury or illness. I believe Mr Boswood accepts this as common ground: see paragraph 24 of his skeleton argument and page 57 of day 3 of the transcript of the oral argument before us.
155. Nevertheless, Mr Boswood submits that it is the existence of the Club's liability to its members which gives the Club the insurable interest in this contingency. He argues that a contingent liability arising on death or accident is a sufficient insurable interest to support the legitimacy of this insurance for the purpose of section l of the 1774 Act. This involves a double contingency: the benefits will be payable not simply if death or injury or illness is suffered by the original person, but only if their death or injury or illness is also shown to have been sustained in circumstances which render the Club member liable to the Original Person.
156. Mr Boswood's case for establishing this contingency liability element in the policy depends on a convoluted argument as to the meaning to be given to "Original Persons". The wording defines an "original person" to mean:-

"(i) any person … while engaged … in any capacity on board or in relation to an Entered Vessel as part of her complement … and/or (ii) other persons while engaged … in any capacity on board or in relation to any Entered Vessel."

157. At first blush that would seem to be wide enough to cover any person, even a stranger, who suffers a bodily injury whilst engaged on board or in relation to the Entered Vessel. There is nothing in that definition to suggest that the original person must be one for whose bodily injury the member is liable. Yet that is the contention advanced by Mr Boswood. It involves an intricate trawl through the other provisions of the wording. The "Entered Vessel" is a vessel entered by "a Member". A "Member" is:-

"An owner and/or (where appropriate) other person interest in any Entered Vessel to whom the Insured has obligations under its Rules and/or terms of entry in respect of Bodily Injury and/or Illness suffered by an original person."

158. Mr Boswood submits that there has to be an obligation arising out of bodily injury or an illness suffered by an Original Person. If, therefore, he submits, it emerges that there are no such obligations because, for example, it transpires that the death or injury was one for which the Member cannot be liable or if it transpires that the claim has been settled at a level below the deductible as between the Member and Steamship, then the Member ceases for the purposes of this contractual scheme to be a Member. The Entered Vessel ceases to be an Entered Vessel and the original person ceases to be an original person.
159. That seems to me to strain the language to an unacceptable extent. As defined, "Member" on the natural and literal meaning of the definition is simply the owner to whom the insured has obligations under the rules, that is to say, an owner who is a member of the Club. That makes sense. "Obligations" is expressed in the plural, not in the singular. It does not easily refer to the specific obligation of the liability of the owner to the injured person on board the Entered Vessel. There are, after all, many obligations owed by the Club to its members covering the vessel, cargo etc. Certainly at the time of writing the insurance there were no specific obligations to any individual person. If it were intended to cover a future event one would have expected the definition to have provided that the insured "will have an obligation" rather than "has obligations".
160. For my part I cannot accept that an Original Person is confined to those persons who will be able to establish the owner's liability to them for the personal injury sustained on board the owner's vessel. If that is what Original Person means, then it could have been said so perfectly easily in the definition of Original Person. Moreover making the payment of benefits depend on liability being established is the very thing this new policy was designed to avoid. Its whole purpose was to ensure that payment of the benefits would not depend on liability.
161. There are further difficulties in the way of Mr Boswood's construction. The insured had to notify all claims by bordereaux which were to contain details of and be accompanied by reasonable documentary proof of various matters including:-

"(a) the Original Person having suffered death or disablement consequent on Bodily Injury …

(b) the date of the accident …

(c) the date of the claim as recorded by the Insured

(d) details of the Bodily Injury …

(e) … if the Original Person has died the date of death"

The benefits under the policy were to be paid within thirty days from the submission of the bordereaux. The purpose of the scheme was to ensure that claims when made were paid within thirty days and that there was no long-tail reserving for future liability. It would not be open to the insured to refuse to pay on the basis that at the time a claim was submitted it had not yet been established that the owner had "obligations under its Rules in respect of the Bodily Injury suffered by [the] Original Person". If the benefits were not paid, Steamship could sue successfully for them. It seems to me to be a commercially absurd construction to place on this agreement that the insurer must pay trusting that, pursuant to clause 6 of the Wording,

"should the Insured at any time become aware that any confirmation or information provided to Underwriters in connection with a claim hereunder is not, or is no longer, accurate or applicable, the Insured shall immediately inform Underwriters and at the same time return to Underwriters any amount by which all payments … exceed the amount (if any) which would actually be payable hereunder in accordance with the accurate or applicable confirmation or information."

162. In my judgment "Original Person" means anyone who suffers a bodily injury on board or in relation to an owner's vessel whether or not the owner is liable in negligence to compensate him. The insurer can have no interest in the life of such a stranger.
163. If a double contingency – death/bodily injury and potential liability therefor – is the subject matter of the insurance as described in the policy has Steamship an insurable interest in it?

The nature and extent of the insurable interest for life/personal accident insurance as established by the authorities so far

164. The critical case is Dalby v India & London Life Assurance Co. (1854) 15 C.E. 365. It is an important case helping to establish that a contract of life-assurance is not a contract of indemnity and that the interest of the assured in the life must exist at the time of the contract and it matters not that the interest ceased before death. The Reverend Wright had taken four policies of insurance with Anchor Life Assurance Company on the life of the Duke of Cambridge to the amount of £3,000. Anchor Life wishing to limit their liability to £2,000, in turn took out a policy with the India & London Life Assurance Company "by way of a cross or counter assurance" in the amount of £1,000 on the Duke's life against the policies effected by the Reverend Wright with them. Parke B. held at page 388:-

"As the Anchor Assurance Company had unquestionably an interest in the continuance of the life of the Duke of Cambridge, - and that to the amount of £1,000, because they had bound themselves to pay a sum of £1,000 to Mr Wright on that event, - the policy effected by them with the defendants was certainly legal and valid …" (Emphasis added.)

165. As I understand that case, Anchor had an interest in the life of the Duke because they were under that liability to pay Mr Wright £3,000 on his death. Anchor would for sure and certain suffer a financial loss on the Duke's death because of their legal obligation to pay Mr Wright. The trigger for payment was the death. Because they had a legal liability to pay on the Duke's death they had a legal interest in his life existing at the time the contract of insurance was made. There was an existing relationship recognised by law between insurer, insured and the life insured. Pace Dyson L.J., Anchor's liability to pay Mr Wright under his four policies was not a "potential legal liability". It may have been a future liability judged at the operative time the insurance with India and London Life was written, but there was no "maybe" about it. At the operative time the liability to pay was certain and legally binding on Anchor. There was a single contingency, not the kind of double contingency said to be present in our case.
166. The case before us is different. At the time this insurance was written it was not known whether the death as such of an Original Person would trigger the obligation to pay under the policy because liability for the death or bodily injury had also to be established. Thus the death merely gives rise to an expectation of loss. The question is whether that is good enough.
167. On the present authorities that is not good enough. In Hebdon v West (1863) 3 B & S 579, the bank clerk Hebdon was given a contract of employment in 1855 for a term of seven years at a salary of £600 per annum. At that time he owed his employer, Pedder, £4,700. Pedder told him that during his (Pedder's) life he would never be called upon for the money. Being desirous to secure himself in the event of Pedder's death, Hebdon requested and obtained Pedder's permission to insure his life to provide against this debt and in 1856 effected an insurance with another company, not with the Plaintiff insurers, on Pedder's life for £5,000. Hebdon's debt to Pedder then increased and in 1857 he obtained the consent of Pedder to effect another insurance, this time with the Plaintiff, on Pedder's life in the sum of £2,500. At the time the second policy was effected he could have anticipated another five years employment which, at £600 p.a., would have brought him £3000. Pedder died in 1861 and the bank stopped payment. The court per Wightman J. held:-

"With respect to the insurable interest to the plaintiff, it was determined, in the case of Halford v Kymer (10 B. & C. 724), that, unless the insured have a pecuniary interest in the life of the insured, the policy is void by the 14 G 3, c.48, s.1. In the present case it was contended for the plaintiff that he had two kinds of insurable interest in the life of Pedder – one, on the ground of a promise that Pedder had made to him that he (Pedder) would not enforce the payment of any debt that the plaintiff might owe him during his (Pedder's) lifetime, and the other, on the ground that the plaintiff was in the employ of Pedder at a salary of £600 a year, under an agreement that the engagement should last for seven years. We do not think that the first kind of interest in the life of Pedder, namely that he had said that he would not enforce payment of debts due to him from the plaintiff during his (Pedder's) life, without any consideration or any circumstance to make such a promise in any way binding, can be considered as a pecuniary or indeed an appreciable interest in the life of Pedder. The other kind of interest, namely that which arises from the engagement by Pedder to employ the plaintiff for seven years at a salary of £600 a year may, we think, be considered as a pecuniary interest in the life of Pedder, to the extent at least of so much of the period of seven years as would remain at the time the policy was effected, which appears to have been about five years. This at the rate of £600 per annum, would give the plaintiff a pecuniary interest in the life of Pedder to the amount of £3,000 which would be sufficient to sustain the present policy, which is for £2,500 only."

168. By reason of s.3 of the Act is was then held that as the plaintiff had received £5,000 on the first policy he was not entitled to recover any more under this second policy.
169. That decision seems to have been applied and approved in this court in Griffiths v Fleming 1909 l K.B. 805, 820 where Kennedy L.J. read Farwell L.J's judgment in which he concurred that:-

"[Section 3 of the 1774 Act] has been held to mean "pecuniary interest" measured by the loss that would be suffered by the beneficiary if the life stopped at the date of the policy. Lord Blackburn says in Wilson v Jones (L.R. 2 Ex 139 at p.150): 'I know of no better definition of an interest in an event than … that, if the event happens, the party will gain an advantage, if it is frustrated he will suffer a loss.' And the interest must be a legal interest, not a mere chance or expectation: Hebdon v West; Halford v Kymer."

170. After reviewing the authorities on life assurance placed before us, I find that the law established by them is accurately stated in MacGillivray on Insurance Law, 10^th Ed, para. 1-49:-

"All previous editions of this work have provided the following 'good working definition' applicable to all risks under the Life Assurance Act 1774: Where the assured is so situated that the happening of the event on which the insurance money is to become payable would, as a proximate cause, involve the assured in the loss or diminution of any right recognised by law or in any legal liability there is an insurable interest in the happening of that event to the extent of the possible loss or liability. Since that Act now applies for practical purposes only to life, accident and other contingency insurances, it has ceased to provide a useful basis for a general definition, but we have retained the text because it emphasises the general rule of English law that an expectation of benefit from the continued preservation of the subject matter of an insurance does not per se create a valid insurable interest in it."

171. Clarke's The Law of Insurance Contracts is to the same effect:-

"3-6. PECUNIARY INTEREST IN LENGTH OF LIFE. In cases in which there is no interest based on natural affection (above, 3-5), the insured must have an interest in the duration of the life insured which is pecuniary (below, 3-6A) and legal (below, 3-6B) at the time of the contract (below, 3-6C). If so there is an insurable interest but one limited in extent to the degree of pecuniary involvement (below, 3-6D).

3-6A Pecuniary interest. The interest must be pecuniary in a reasonable sense capable of valuation in money

3-6B Legal interest. The interest 'must be a legal interest, not a mere chance or expectation' [Griffiths v Fleming], so that if the life drops, there is an effect on some right enjoyed by the insured … or he incurs a legal liability (below, 3-6B2). For example, a binding promise not to enforce a debt during the life of the creditor gives the debtor a legal interest in the life of the creditor, but a gratuitous promise does not [Hebdon v West].

3-6B.2 Contingent liability. If the incidence of legal duty is dependent on the duration of human life, there is an insurable interest in that life. Thus a life insurer has an insurable interest in the life insured which justifies reinsurance [Dalby] …"

172. On the basis of those authorities, Steamship has no insurable interest. The legal relationship which can give rise to an insurable interest is the Club rule that the Club indemnify the member in respect of compensation paid by the member in relation to that death or injury. But that depends upon the member's liability to compensate being established. Until that liability is established, the death or injury per se creates no more than an expectation of disadvantage and that is not enough.
173. There is another difficulty which seems to me to face the insurers. If the insurable interest arises because of Steamship's potential or contingent liability to reimburse its members, then it seems to me impossible to deny that the value of that interest for the purposes of s.3 of the Act is the amount of the liability actually incurred in respect of each accident. Any excess of benefit payable under the policy and the sum actually paid to the Original Person by the member is irrecoverable. But that is a nigh impossible task for the court to undertake given the huge number of claims which would have to be examined where in many cases liability has not yet been established and will not be established for years. That task cannot be shrugged by a resort to the genuineness of the swings and roundabouts argument that the benefits and the liabilities would more or less equate. The difficulties created by treating these contingent liabilities as the basis for the insurable interest militates against this kind of contingent liability truly being an insurable interest.

Can the authorities on marine/non-marine insurance be used to clarify the nature and extent of the insurable interest for life and personal accident insurance?

174. I see no reason why they should not, and every reason why, for the sake of clarity and consistency, insurable interest should bear as nearly as possible the same meaning for all categories of insurance. In Griffiths v Fleming, two members of the Court of Appeal did not hesitate to draw on those other authorities citing Wilson v Jones (1867) L.R.. 2 Ex. 139 with approval. It is inconceivable that that court had overlooked the fact that there are differences between life and other forms of insurance – (i) that the life insurable interest has to exist at the time of writing the loss, whereas the property interest has to exist at the time of the loss and (ii) subject to the effect of section 3 of the Act, life insurance is not strictly indemnity insurance. These differences do not justify the concept of insurable interest being different. In my judgment, these other authorities in the allied fields must be examined to see what light they throw upon the question before us.

The nature and extent of the insurable interest in marine and non-marine insurance

175. Here there is binding House of Lords authority on the subject The first is Lucena v Craufurd (1806) 2 Bos.& Pul. (M.R.) 269 and the other is Macaura v Northern Assurance Company Ltd. [1925] A.C. 619.
176. There is an illuminating review of Lucena v Craufurd in The Modern Law of Marine Insurance, vol 2, edited by D. Rhidian Thomas, para.4C. I will not set out the complicated factual history. In giving his advice to the House of Lords, Lawrence J. set out his definition of insurable interest in property in these terms at p.302:-

"A man is interested in a thing to whom advantage may arise or prejudice happen from the circumstances which may attend it … And whom it importeth, that its condition as to safety or other quality should continue: … and where a man is so circumstanced with respect to matters exposed to certain risks or dangers, as to have a moral certainty of advantage or benefit, but for those risks or dangers he may be said to be interested in the safety of the thing. 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." (Emphasis added by me.)

Kerr L.J. in Mark Rowlands Limited v Berni Inns Limited (1986) 1 Q.B. 211, 228, described this passage, but omitting the italicised words, as 'the classic definition of insurable interest'. It is properly so regarded, at least so far as it concerns the element of "economic interest", as Professor Clarke in The Law of Insurance Contracts para. 4-3A calls it.

177. The economic interest element is, however, not enough. A second element is required, namely a legal or equitable relation to the subject matter insured. This element was established by Lord Eldon, who rejected the "moral certainty" argument, saying at p.321:-

"In order to distinguish that intermediate thing between a strict right, or a right derived under a contract, and a mere expectation or hope, which has been termed an insurable interest, it has been said in many cases to be that which amounts to a moral certainty. I have in vain endeavoured however to find a fit definition of that which is between a certainty and an expectation; nor am I able to point out what is an interest unless it be a right in the property, or a right derivable out of some contract about the property, which in either case may be lost upon some contingency affecting the possession or enjoyment of the party."

At p.323 he added:-

"That expectation [of the insured in the case], though founded upon the highest probability, was not an interest, and it was equally not interest, whatever might have been the chances in favour of the expectation … If moral certainty be a ground of insurable interest, there are hundreds, perhaps thousands, who would be entitled to insure. First the dock company, then the dock master, then the warehouse-keeper, then the porter, and then every other person who to a moral certainty would have anything to do with the property, and of course get something by it."

178. That additional requirement was carried into law by s.5(2) of the Marine Insurance Act 1906 providing:-

"In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss or damage thereto, by the detention thereof, or may incur liability in respect thereof."

179. In cases of property insurance the House of Lords in Macaura rejected the adequacy of an expectation of harm when the insured, the sole shareholder and a creditor of the company, was held not to have an insurable interest in timber he had sold to the company. His interest was in his shareholding and he had not insured that but endeavoured to insure the timber itself. Lord Buckmaster observed at p.627:-

"I find … a difficulty in understanding how a moral certainty can be so defined as to render it an essential part of a definite and legal proposition;"

and at p.628:

"Neither a simple creditor nor a shareholder has any insurable interest in a particular asset which the company holds."

180. This case has not found much support in other jurisdictions. The Canadian Supreme Court, among others, has declined to follow it: see the penetrating judgment of Wilson J in Constitution Insurance Company of Canada v Kosmopoulos (1847) 34 D.L.R. (4^th) 208. She points out convincingly that insurance companies, to whom full disclosure of material facts must always be given, have every ability to decide whether or not to write the policy and if so at what premium. There may be more social advantage from encouraging insurance than discouraging it. As she said:-

"Why should the porter in Lord Eldon's example not be able to obtain insurance against the possibility of being temporarily out of work as a result of the sinking of the ships?"

181. However much I might agree, it is not for me to question the authority of these decisions of the House of Lords which stand unless and until their Lordships decide to change the rules. I have to apply the law as it is handed down and I am forced to conclude that the need for a legal relationship between the insured and the subject matter of the insurance remains an essential part of marine and property insurance. It was accepted by this court in Griffiths v Fleming to be part of the law of life insurance. It is not for me to gainsay it.
182. It is, however, necessary to consider other developments, especially at first instance. In Petrofina (UK) Limited v Magnaload Limited (1984) Q.B. 127 the main issue was whether the insurers had a right of subrogation to sue a sub-contractor, a co-insured, in the name of the main contractor. Lloyd J. held at p.136-137:-

"I would hold that the position of a sub-contractor in relation to contract works as a whole is sufficiently similar to that of a bailee in relation to goods bailed to enable me to hold, by analogy, that he is entitled to ensure the entire contract works, and in the event of a loss to recover the full value of those works in his own name."

A bailee would, of course, have a legal interest in the goods but it is not at all clear to what extent this question was considered as such: I note, for example, that cases like Macaura appear not to have been cited.

183. That was followed in Stone Vickers Limited v Appledore Ferguson Shipbuilders Limited (1991) 2 Lloyds Rep. 288 by Mr Anthony Colman Q.C. as he then was. Again the main question was of subrogation where the sub-contractor, the supplier of a propeller to be fitted into the ship being built, was named as a co-assured of the vessel. It was held that the supplier did have an interest in the whole contract works and accordingly would have been entitled to sue as co-assured under the policy. Petrofina and Mark Rowlands v Berni Inns were referred to by the judge but Macaura was not. The approach adopted by the judge was to ask:-

"Whether the supplier of a part to be installed into the vessel or contract works under construction might be materially adversely affected by loss of or damage to the vessel or other works by reason of the incidence of any of the perils insured against by the policy in question. If the answer to that question is in the affirmative there is no reason in principle why such a sub-contractor should not also have sufficient interest in the whole contract works to be included as a co-assured under the protection of the head contractor's policy."

184. In the "Moonacre" (1992) 2 Lloyds Rep. 501, Mr Sharpe insured a motor yacht, formerly his, but which he had transferred to his company. The yacht caught fire and was a constructive total loss. The insurers challenged Mr Sharpe's insurable interest in the vessel. Mr Colman Q.C., sitting again as a Deputy Judge of the High Court, held at p.512:-

"Let it be assumed that Mr Sharpe was indeed no more than a licensee and further that he was subject to no duty of care in relation to the vessel, can it be said he is in no materially different relation to the vessel than that of Mr Macaura to the timber? I do not consider that it can. Such a submission entirely overlooks the fact that by the two powers of attorney Roarer [the company owning the yacht] had conferred on Mr Sharpe authority to enjoy the use of the vessel exclusively for his own purposes. That was a valuable benefit which would be lost if the vessel were lost. The legal relation in which he stood to the vessel was that for as long as the powers of attorney remained he was entitled to use it for his own purposes and to exercise over it such control as he thought fit. His powers were such that he could even abandon it to the insurers in the event of a constructive total loss; a relation to the goods sometimes considered decisive of the issue of title to sue'…. In my judgment Mr Sharpe by reason of the powers of attorney stood in a legal relationship to the vessel in consequence of which he would benefit from the preservation of the vessel and, if the vessel were lost or damaged, he would suffer loss of a valuable benefit. I therefore hold he had an insurable interest in the vessel."

That seems to me to be a case of Macaura applied because the judge was requiring and found a legal relationship between the insured and the subject-matter of the insurance.

185. Then there is National Oilwell (UK) Limited v Davey Offshore Limited (1993) 2 Lloyds Rep. 582, where the by now Colman J. did have all the authorities in mind yet he held at p.611:-

"It is no doubt true that the conventional means of obtaining in the market insurance protection against such liability for proper damage is to take out a liability policy and for the purposes of such policy there is no question that the assured would have an insurable interest in his potential liability. But the fact that he has an insurable interest for that kind of risk does not lead to the conclusion that he cannot have an insurable interest in the property itself for the purpose of a policy on property risks. The fact that the market does not offer such policies is neither here nor there. What matters is whether, if such a policy were effected, the assured would have a sufficient relationship with the subject matter to give rise to an insurable interest. In my judgment he would."

I am doubtful whether that judgment can stand in the light of the decisions like Anderson v Morice (1875) L.R. 10 C.P. 365 and Deepak Fertilisers and Petrochemicals Corporation v ICI Chemicals and Polymers Limited (1999) l Lloyds Rep. 387.

186. In the former important case in the Exchequer Chamber Blackburn J. said this at p.621:-

"We need not discuss whether, under a properly framed policy, the plaintiff could have insured this expectancy of profit. For the subject-matter of this insurance is on 'rice', and though that is to be construed liberally as covering any interest in the rice, it cannot be construed as covering an interest in profits that might arise collaterally from a contract relating to the rise. For this it is enough to refer to Lucena v Crawford. The action was on a policy on ships and goods. Eight questions were asked of the judges. The eighth, set out at p.278 of the report, was as to whether the Commissioners had profits in respect of which they had an insurable interest, and then asked: 'Can the policy of assurance in the first count of the declaration mentioned (i.e. a policy on ships and goods) be considered as a policy effected on such interest of the Commissioners, if such they had, and the same is an insurable interest?' The answer of the judges is stated at p.315:-

'The learned Judges were unanimously of opinion that the policy in question could not be considered as a policy on profits, having been expressly declared upon as a policy upon the plaintiff's interest in the ships and goods themselves, and that if it had been intended as a policy on profits it should have been so stated.'

"This we think decisive of the question; but we may refer to Royal Exchange Assurance v McSwinney 14 Q.B. 646 as shewing how important it is, not only to have an insurable interest, but to have the subject-matter of insurance so described in the policy as to embrace that interest."

If the distinction had to be drawn between the rice and the profits on the rice, it is difficult to see why a similar distinction should not have been drawn by Colman J. between the property and the liability for harm arising from the property.

187. Deepak is even more to the point. Stuart-Smith L.J. giving the judgment of the court which included Otton and Tuckey L.JJ. said:-

"65. In our judgment Davey (the contractor) undoubtedly had an insurable interest in the plant under construction and on which they were working because they might lose the opportunity to do the work and to be remunerated for it if the property or structure were damaged or destroyed by any of the 'all risks' such as fire or flood. Thereafter Davey would only suffer disadvantage if the damage to or destruction of the property or structure was the result of their own breach of contract or duty of care. In order to protect the contractor and sub-contractor against the risk of disadvantage by reason of damage or destruction of the property or structure resulting from their breach of contract or duty they would, in accordance with normal practice, take out liability insurance or, in the case of architects, professional indemnity insurance. … what they cannot do is persist in maintaining an insurance of the property or structure itself.

66. Accordingly we must differ from the approach adopted by the learned Judge. He held that he could see no reason why Davey (and ICI) should not have an insurable interest in the plant so long as they were arguably responsible in some way for damage to it. He posed the question:

"Why should not an architect or technical designer or constructor be liable to insure himself against his liability for damages to a structure due to his fault, even though the structure fails after its completion?

67. They could, of course, do so. This would be by means of liability insurance. Even if Davey (and ICI) and any of the sub-contractors had been named in the subsequent 'Fire Policy' they would not have been covered in respect of their breach of contract or duty under that policy."

188. There is a powerful criticism of Stone Vickers and National Oilwell in MacGillivray at paragraphs 1-155 to 1-159. I agree with that criticism. I appreciate that these cases have been considered by this court in Co-operative Retail Services Limited v Taylor Young Partnership C.A. 4 July 2000. In that case, however, the court was once again concerned with questions of subrogation and nothing in the judgment of Brooke L.J. seems to me to deal at all with the question of insurable interest and the test to be applied to determine whether the insured has one or not. I feel able to prefer the views expressed in Deepak. Fatally, it seems to me, the economic interest element, where Lawrence J.'s dictum is so valuable, has gained ascendancy and sight has been lost of the need to satisfy the second part of Lucena, namely that there has to be some legal or equitable interest between the insured and the subject matter of the insurance, expectation of harm or benefit not being enough. Of course the insured may suffer a disadvantage from the loss of the thing assured, but that is not, as our law stands at the moment, enough.

Does this policy embrace the insurable interest the insured has?

189. I pose this question because it was so determinative of the outcome in Anderson v Morice. On analysis of the policy in our case, it seems plain that the subject is death consequent upon Bodily Injury; Permanent Total Disablement or Temporary Total Disablement consequent upon Bodily Injury and/or Illness. Liability for such death or disablement is not covered. Not to cover it was the whole purpose of the policy. Steamship undoubtedly had an insurable interest in the liabilities incurred by their Members but sacrificed their insurance of that interest for the sake of this new policy. If this covers life and no more than life, the question remains: is its expectation of some harm from some of the events covered good enough?
190. It is if Mr Boswood's definition (a genuine or reasonable expectation of disadvantage upon the occurrence of the event assured against) carries the day. I have already exposed what I consider to be the flaw in that submission, namely that it wrongly ignores the need for a legal relationship between the insured and the subject matter. Yet even if I take it at face value, there can be no certain expectation of disadvantage from the mere fact of death or Bodily Injury to an Original Person. The potential or contingent disadvantage is that the Member will become liable to compensate the Original Person and will then look to the Club to indemnify it under the rules of the Club. So the fact of death or injury does not trigger the liability to pay as it did for Anchor Life when the Duke of Cambridge died. Liability, which is a fact apart from death or Bodily Injury is not established by death or Bodily Injury alone. Death alone is not the proximate cause of the payment of the insurance money. It is only the existence of the Club's liability to indemnify its members if the member becomes liable to the injury Original Person which gives the Club an interest in the wellbeing of the Original Person. But that is not an interest embraced by this policy.

Conclusion

191. In summary, I reluctantly conclude that such differences as exist between life insurance, on the one hand, and marine/non-marine insurance, on the other hand, do not justify different concepts of insurable interest applying to those groups. If statute and binding House of Lords authority compel for the latter category the need for a legal or beneficial interest in the subject matter of the insurance and eschew the adequacy of an expectation of harm or benefit, then I consider it wrong to allow a looser concept to prevail for the former. I cannot accept that any interest in anything is a sufficient insurable interest. I feel compelled to allow the appeal.
192. I am extremely disgruntled at having to come to that conclusion for it does scant justice in a case of this kind. The insurers thought it was a good enough risk to write at a premium which they dictated. They presumably thought it was an acceptable risk to continue and I am no doubt over-cynical in assuming that it was only when losses began to emerge that the point, which this policy was intended to have dealt with satisfactorily, was taken. I have to struggle to find that the contract was null and void. Why it also has to be illegal baffles me. Although Parliament has had the opportunity in comparatively recent years to consider the Act of 1774, it may not be overdue to look at it again. If this case reaches their Lordships' House, their Lordships may have more power than regrettably I feel I have to change the unhappy result which I have reached.
193. As a postscript I would say on the authority issue that I entirely agree with the judgment of Dyson L.J.

Order: Appeal Dismissed; Counsel to lodge an agreed minute of order.

(Order does not form part of the approved judgment)

POST JUDGMENT DISCUSSION See also: [2003] EWCA Civ 1106

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194. LORD JUSTICE WARD: As result of the judgments we have handed down, this appeal is to be dismissed.
195. MR BOSWOOD:My Lords, we have done a little sheet - it is a very straightforward document - which sets out what should happen, in our submission, as between Steamship and the Syndicate. (Document handed to their Lordships) It does not deal, obviously, with the position as between the Syndicate and Sun Life. Paragraph 1 your Lordship has just uttered. Paragraph 2: costs as against the Syndicate, who are of course technically the counter-party to Steamship. This reflects what happened below. Paragraph 3: Sun Life to be entitled to attend and make representations.
196. LORD JUSTICE WARD: Do you need that? I thought you had a right to do it.
197. MR BOSWOOD: It was in the order below. I do not know whether it is necessary or not. It is for the avoidance of doubt. Paragraph 4 is non-controversial. Paragraph 5: the £129,000, my Lords, is a sum sought on account of costs. That is 60 per cent of £215,000, which is the amount which has been billed to Steamship by Richards Butler. It comprises Richards Butler's profit costs of £105,000 and counsel's fees in a total of £110,000. That is the total of £215,000, of which 60 per cent is £129,000, which we seek as an on-account payment. My Lords, that is all that I ask for as between myself and the Syndicate.
198. LORD JUSTICE WARD: What do you say, Mr Flaux?
199. MR FLAUX:My Lords, none of that is controversial so far as the Syndicate is concerned. The position below before Mr Justice Langley is that the learned judge made a similar order for payment on account of Steamship's costs to be reimbursed by Sun Life, and at that stage Phoenix was proceeding on the same basis. I would ask your Lordships to make an order that Sun Life pay £129,000 to the Syndicate on account of Steamship's costs by 10th July. I do not know whether that will be controversial, but I await to hear what Mr Kendrick says. I think in principle there is no objection. There may have been a problem in obtaining instructions.
200. My Lords, the next question which is trailed by paragraph 6 (which is in square brackets) is the issue of the Syndicate's costs as against Sun Life. So far as the authority issue is concerned, obviously we fought that issue and lost it and I cannot object to an order for costs being made against my clients in relation to that issue.
201. So far as the other issues on the appeal were concerned, your Lordships will recall that originally the misrepresentation and non-disclosure issues were the subject of an appeal against my clients. That was abandoned in January of this year and we respectfully submit that on any view we must be entitled to our costs of the appeal so far as those issues are concerned. That was in fact the subject of most of our skeleton argument.
202. But, my Lords, so far as other costs are concerned, it will no doubt be said - I know it will be said because it has been foreshadowed in correspondence - that we should not be entitled to our costs as we did not need to be here. There are two short points about that. First of all, as your Lordships will recall, we indicated at the hearing of the appeal and we have indicated previously in correspondence that, although we do sit in the middle, we were very much on Steamship's side. It was very much in my clients' interests, financially and otherwise, that Steamship should succeed.
203. LORD JUSTICE WARD: You could have fooled me, but never mind.
204. MR FLAUX: My Lord, that leads on to the second thing, which is that, in the interests of saving costs, we did not put in any detailed further submissions of our own and therefore the costs have been kept to a relative minimum. In those circumstances I would ask for an order for costs.
205. LORD JUSTICE WARD: The fact is that you are a party.
206. MR FLAUX: Yes, and any problems can be ironed out on detailed assessment. My Lords, that is all I want to say about costs. As to permission to appeal, I will wait to hear what Mr Kendrick has to say about that.
207. LORD JUSTICE WARD: Thank you. What do you say, Mr Kendrick?
208. MR KENDRICK:My Lords, if I take first of all the order that Mr Boswood put before you, the only point which we do oppose is the order for interim payment out of the figure of £129,000. The chronology of this is quite simple. On Tuesday, just after 4.00pm, Richards Butler asked for £132,000 as an interim payment out of a £218,000 total. I said, "That is not accepted. Let them know by return so that they could produce a witness statement." At five o'clock on Tuesday my solicitors faxed back saying, "You have not given us a breakdown. We will need that to form an informed view."
209. LORD JUSTICE WARD: You had not had a breakdown before that?
210. MR KENDRICK:No, my Lord, not at all. On Wednesday, yesterday, we got a letter at five o'clock from Richards Butler saying that the original figure should be slightly reduced to a £215,000 total, and my learned friend has just given a revised figure of £129,000. We have had no witness statement, no breakdown, no details such as you might get in a skeleton bill on security and, more to the point also, we have not been able to take instructions. The person at Sun Life from whom we have taken some instructions has been away and we have not been able to contact him. My Lords, we are not in a position where we can consent to that order and in the circumstances we invite the court to say that there should be no order for interim payment out.
211. My Lords, if I can turn to the Syndicate's costs ----
212. LORD JUSTICE WALLER: You think that Mr Boswood might have been doing this for nothing?
213. MR KENDRICK: My Lord, such was his passion in arguing the case. But I am in a position, my Lord, where I simply have not had a breakdown, I do not have instructions and I am not able to make any concessions here.
214. My Lords, could I turn to the Syndicate costs. We would suggest that costs should be dealt with as follows. First, the Syndicate should pay our costs of the cross-appeal on authority, and that is not opposed. Secondly, we should pay the Syndicate's costs of our appeal on misrepresentation and non-disclosure which Mr Flaux referred to, which we abandoned, up to the date of the abandonment, which is 17th January of this year. The same principle governs both those situations: costs follow the event. But thirdly, my Lords, I would invite the court to give an indication to the taxing master that the Syndicate should bear their own costs in relation to the 1774 Act, including all attendance by counsel, leading and junior, and solicitors to hear the argument on the 1774 issue.
215. My Lords, we did write a letter on 17th January 2003, when abandoning that non-disclosure appeal, making this very point and pointing out that the Syndicate was a passing intermediary which was simply passing on those allegations. May I pass that up to you. I think we have the reply as well, my Lord. (Documents handed to their Lordships). May I ask your Lordships to read the letters briefly.
216. LORD JUSTICE WARD: Yes. (Documents read by their Lordships)
217. MR KENDRICK:Can I just make this point. Mr Flaux's attendance, we submit, were unnecessary costs, unnecessarily incurred. If I can elaborate on that, the Syndicate saw the voluminous skeletons served in advance by both parties and did not add to the skeletons themselves. Secondly, they did take no part at all. Their part was indeed the passing intermediary and it was obvious ----
218. LORD JUSTICE WARD: That is my recollection. I do not recall Mr Flaux offering anything on the 1774 issue. Nor was there much of anything in his skeleton.
219. MR KENDRICK: No. Thirdly, my Lords, it was exactly the same at trial at first instance. The Syndicate took no part in relation to insurance interest and adopted exactly the same approach at that time too.
220. LORD JUSTICE WARD: What was the order made there?
221. MR FLAUX: We got all our costs.
222. MR KENDRICK: Those were fundamental issues of fact, in my submission, in relation to that. That is why we only wrote this letter after we dropped the misrepresentation and non-disclosure point - so now you really are just a passive onlooker.
223. My Lords, if that was tested by this, suppose they had taken up the offer which we gave them to drop their cross-appeal, with some costs saving to them. I think Mr Flaux would still have to say, "Yes, I was still entitled to attend completely and get my full costs of carrying on." In my submission costs need to be kept under control and, although no figure has been put forward on Mr Flaux's part at all, I strongly suspect we are not considering a simple watching brief in this case because Mr Flaux is here, his junior was here throughout, and a very senior partner was here from Lovells. In my submission there should be a clear indication that the 1774 issues should not be costs which Mr Flaux can have.
224. My Lords, that is all I wish to say about costs. I was going to deal now with leave to appeal, if I can go on to that.
225. LORD JUSTICE WARD: Yes.
226. MR KENDRICK: We do ask for leave to appeal to the House of Lords. I submit that it is a very clear case for leave. There are three or four obvious points. First, it is a point of general public importance in the field of insurance. It is a fairly fundamental question what is, or should be, insured with interest in the 21st century. It is exactly the sort of point that has to be (inaudible) insurance. Secondly, the majority recognise that there is a strong - I think a formidable - issue and argument the other way: is there a need for a legal relationship between the insured and subject matter, such as is required in public insurance, and, according to the Court of Appeal, in life insurance in Griffiths v Fleming. There is impact which tends to support, I would submit, the leading textbook. It truly is a House of Lords issue. Thirdly, the House of Lords has not looked at this point in recent decades: hence in argument the reference to Canada, Australia, to learned articles etc. Fourthly, looking at the individual case, there are large sums involved in this very case. There is the top-up insurance also.
227. LORD JUSTICE WARD: What are the amounts involved? It is over 60 million dollars, is it not?
228. MR KENDRICK: I think it is an evolving account, so it is difficult to give a figure, but at least of that order, I think. I would say that against that background there is no point or need to put the parties to the cost and delay of applying to the House of Lords. Speaking from my own experience, in applying for leave in July, the decision may well not be reached until November/December. It is not in anyone's interests for this to occur in a clear case. Therefore, I submit that leave should be given now.
229. LORD JUSTICE WARD: What do you say, Mr Boswood?
230. MR BOSWOOD: My Lords, on the question of costs the only thing that lies between us is the £129,000.
231. LORD JUSTICE WARD: What lies between you is your solicitors providing some breakdown of their costs. Why have you not got it?
232. MR BOSWOOD: I told your Lordship that £215,000 is the figure billed.
233. LORD JUSTICE WARD: I do not doubt it at all as a figure, but surely the other side are to have some opportunity to cast their eye over it. It is not an assessment of costs at the end of a day's hearing of the kind we have to engage in, but at least if you are coming to ask for an interim payment you should give some evidence of your costs.
234. MR BOSWOOD: My Lord, there it is. They know what their own costs are and the question is whether the figure of £215,000 can in any way be regarded as unreal.
235. LORD JUSTICE WARD: I dare say that you can press a button on the computer and it spews it out and you have got an interim bill, and there it is.
236. MR BOSWOOD:My Lord, I do not say any more about that. So far as leave to appeal is concerned, I cannot in all honesty deny there are points of interest and importance, and much of what my learned friend says ----
237. LORD JUSTICE WARD: In all honesty, if you had lost, Mr Boswood, you would be making exactly the same application.
238. MR BOSWOOD: Of course I would, my Lord.
239. LORD JUSTICE WARD:And intending to go.
240. MR BOSWOOD: Absolutely, my Lord. There is no question about that. The amounts involved in this case are considerably higher than my learned friend has indicated. Of course I would. There is no question about that. The only point I would make is that the House of Lords prefer on the whole to, as it were, dine à la carte rather than from the menu fixe.
241. LORD JUSTICE WARD: They usually make a meal of my judgments.
242. MR BOSWOOD:Are more particularly, and perhaps slightly more seriously, the House of Lords have in my recent experience refused leave to appeal, in a case with totally dissimilar issues but which involved unquestionably important issues of public importance, on the basis that the position of the party seeking leave was so profoundly unmeritorious that they just were not prepared to entertain the petition. That is the sort of consideration which they do take into account. But those are the only matters I seek to put before this court on that question.
243. LORD JUSTICE WARD: Does anybody have anything else to say? No? I think we will retire for a few minutes.
(Their Lordships retired briefly and then returned to court and gave their ruling (for which see separate transcript)
244. LORD JUSTICE WARD: Can you please draw orders to the effect of all of that. I think I have covered it all.
245. MR BOSWOOD: I think your Lordship has, and we will.
246. LORD JUSTICE WARD: It took me time, and I am sorry I have kept you waiting. Thank you very much.