Textbook Notes Chapter 4 – Insurable Interest

Textbook Notes

Chapter 4 – Insurable Interest

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  An insurance claim will fail if insurer can show that the insured lacked an appropriate connection to the subject matter of that insurance
  

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  To claim successfully under indemnity insurance contract, must show that you had an insurable interest in subject matter at the time loss occurred
  

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  In Canada, we use factual expectation test to determine insurable interest
  
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    This is adopted in preference to more technical, legalistic test based on property or contractual rights in subject matter
    
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    SCC held that this preference is because factual expectancy test is fairer
    

Insurable Interest in Property

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

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  Cases involving adverse possession can be problematic under factual expectancy test
  
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    At CL possession is root of title, that is good against all except the legal title holder
    
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    This amounts to an interest that satisfies direct legal right test
    
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  Stevenson v London & Lancashire Fire Insurance Co : P purchased house and subsequently discovered he had no title to land
  
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    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
    

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  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
  
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  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
  
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    Majority held that barn merged with the realty and P had no insurable interest
    
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  SK CA has held that factual expectation test doesn’t benefit a mortgagor who has lost title under a final order of foreclosure
  

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  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
  
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    But where property acquired innocently, there is insurable interest based on possession until rightful owner comes forward
    

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  Generally, imported property not declared under Customs Act is forfeited to Crown when offence committed
  
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    But recently, mere fact of importation without strict compliance with customs requirement does not preclude an insurable interest
    
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  Ardekany v Dominion of Canada General Insurance Co: insured made oral but not written declaration, custom did not actually seize the goods
  
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    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
    

Chapter 5 – Non-disclosure & Misrepresentation

Rules Developed by Courts

1. 
   Customer’s Duty
   

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  Person applying for insurance must disclose all matters within his/her personal knowledge that are relevant in determining nature and extent of risk (Carter)
  
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    Duty applies in absence of questions from insurer
    
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  Traditionally, the test for determining whether a fact is relevant/material is objective in the sense that the fact must be such that a prudent insurer would take it into account in deciding whether to decline the risk or set a higher premium
  
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    i.e. 1) whether a prudent insurer would be influenced by the info, 2) whether the particular insurer would have been influenced by it
    
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    Insurer’s practice that is in conformity with general industry standards may be acceptable w.r.t. determining what is material (Kehoe)
    
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  Consequence of non-disclosure or misrepresentation by customer is loss of coverage since insurer entitled to render contract void
  

2. 
   Insurer’s Duty
   

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  Insurer must exercise good faith in finding out from public sources, matters that are notorious w.r.t. risk it is asked to accept
  
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    Contrary to good faith for insurer to accept premium from customer when it knows customer has not divulged certain info, then raise that as defence when customer tries to claim under the policy
    

How Legislation has Modified the Rules

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  Unspecified Classes of Insurance
  
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    Insurer may only raise non-disclosure or misrepresentation by customer if discrepancy concerns matter relevant to insurance, s. 17
    
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  Fire Insurance
  
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    Governed by s.29 of the Act, statutory condition 1
    
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    Insurer may invoke defence where info is material, as per the CL test
    
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    CL restriction that only info within customer’s personal knowledge counts applies
    
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    Only a fraudulent omission will void the contract, while any misrepresentation will do to void the contract (in the sense that customer’s intent is irrelevant)
    
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      An omission is fraudulent if insurer can prove that 1) customer knew that facts ought to have been disclosed, and 2) subjectively, those facts were relevant to the insurance
      
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  Automobile insurance
  
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    Duty of disclosure confined to two categories: particulars of auto to be insured, and facts requested on the application form
    
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  Life Insurance, accident and sickness insurance
  
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    Duty of disclosure is imposed on customer and on behalf of person whose life or wellbeing is insured
    
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    Customer must disclose everything they know that is relevant to insurance
    
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    Test of relevance is that applied by the reasonable insurer
    

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