Kosmopoulos v Constitution Insurance [1987] SCC (pg 13 onwards)

Kosmopoulos v Constitution Insurance [1987] SCC (pg 13 onwards)

• 
  SCC agreed originally with HL in Macaura w.r.t. a narrower understanding of insurable interest (by using direct legal rights test), formerly preferred old approach rather than Lawrence which argued for a more expansive understanding of insurable interest
  
• 
  Policy reasons for the rule
  
  • 
    Concerns about wagering, if there was incentive to fix result, this would jeopardize the whole institution
    
  • 
    Public policy of principle restricting insured to full indemnity for his loss
    
  • 
    Moral hazard
    
• 
  But in Kosmopoulos, SCC found direct legal right approach led to harsh result so it was rejected
  
  • 
    Factual expectation approach was more just and no more likely to promote wagering or moral hazard
    
• 
  Those that have legal interest in subject matter are tenants, mortgagees, bailees, holders of options… etc
  

• 
  E.g. fire burns down building 3 mins after policy on building expires, is the building insured?
  
  • 
    Bilkey says yes based on Kosmopoulous
    
• 
  Since Kosmopoulos, it is also possible that an unsecured creditor will be able to claim successfully under insurance taken out on a debtor’s property
  
  • 
    Test will be moral certainty of benefit from the continued existence of the property and loss from its destruction
    

• 
  E.g. 1: A owns real estate, knows B has better title to it, A knows B will sue him for the title, A insures the estate, estate burns down, B gets title
  
• 
  E.g. 2: mortgagor owns a house, knows it will go into foreclosure, gets insurance, some damage occurs to house – Brown argues this isn’t so much a matter of whether one had insurable interest, better route is to say that they were making misrepresentation or fraudulent omission when getting insurance
  
  • 
    Moral hazard is not insurable
    

• 
  Titleholders have insurable interest in property they own
  
  • 
    E.g. vendors and purchasers of land, unpaid vendors, assignees in bankruptcy, tenants, lienholders and mortgagees
    

• 
  Cases involving adverse possession can be problematic under factual expectancy test
  
  • 
    At CL possession is root of title, that is good against all except the legal title holder
    
  • 
    This amounts to an interest that satisfies direct legal right test
    
• 
  Stevenson v London & Lancashire Fire Insurance Co : P purchased house and subsequently discovered he had no title to land
  
  • 
    P had an insurable interest, and in absence of fraud or wilful misrepresentation, the legal title of a stranger could not stand as a defence to the claim of the insured
    

• 
  Where insured stands to lose property, loss by an insured peril will make little different to him/her, thus insured may be tempted to convert property into cash in the form of insurance proceeds
  
• 
  Sherboneau v Beaver Mutual Fire Insurance Association: P lived on Crown land for 37 years, built barn and insured it, eviction ordered, before it occurred, barn was destroyed
  
  • 
    Majority held that barn merged with the realty and P had no insurable interest
    
• 
  SK CA has held that factual expectation test doesn’t benefit a mortgagor who has lost title under a final order of foreclosure
  

• 
  A person who acquires property knowing that it was stolen, or is wilfully blind to that fact, has no insurable interest on the basis of possession
  
  • 
    But where property acquired innocently, there is insurable interest based on possession until rightful owner comes forward
    

• 
  Generally, imported property not declared under Customs Act is forfeited to Crown when offence committed
  
  • 
    But recently, mere fact of importation without strict compliance with customs requirement does not preclude an insurable interest
    
• 
  Ardekany v Dominion of Canada General Insurance Co: insured made oral but not written declaration, custom did not actually seize the goods
  
  • 
    BC CA held that to deny insurable interest here would confer an undeserved beneit on insurers who are prepared to rely, without regard for the spirit of the contract, on the letter of the law to avoid paying out
    

• 
  For liability insurance, insurable interest is the contingent (potential liability
  
• 
  Factual expectancy test since Kosmopoulous has been used to find insurable interest where people haven’t had legal or equitable title – e.g. unsecured debtor of property
  

• 
  Crucial time to determine an insurable interest for non-indemnity insurance is when the contract was made
  
  • 
    Because if the contract wasn’t supported by an insurable interest, it would not be insurance but a wager, and therefore illegal and void from the start
    
• 
  For indemnity insurance, time to determine insurable interest is when loss occurs
  
  • 
    On the other hand, this type of insurance isn’t necessarily void from the beginning for lack of insurable interest at the beginning
    
  • 
    E.g. farmer that has yearly crop, but crop isn’t necessarily there when insurance is bought, factual expectancy would allow farmer to have insurable interest in crops not yet grown (pg 4-13)
    

• 
  Can also insure property for the benefit of others
  
  • 
    E.g. partnerships, commercial insurance policies
    
• 
  Above exception is granted when following requirements are met
  
  • 
    Person taking out insurance must intend to cover interest of the others
    
  • 
    Insurance policy must allow for him/her to do that
    
  • 
    Person taking out insurance must have some interest in the insured property personally
    
  • 
    If there’s a loss, they must hold the proceeds of insurance exceeding their loss in trust for others
    

• 
  In s.29 of Insurance Act, statutory conditions are deemed to form part of any indemnity insurance contract
  
  • 
    Statutory condition under s.126 w.r.t. fire insurance: “unless otherwise specifically stated in the contract, the insurer is not liable for loss or damage to property owned by any person other than the insured, unless the interest of the insured therein is stated in the contract”
    
  • 
    For the purposes of this statutory condition, an owner of property is anyone with an insurable interest in the property, thus as long as named insured has such an interest, he/she will not be caught by the statutory condition