Insurance
Insurable Interest
Littlejohn v Norwich Union Insurance
Society 1905 TH 374
• Littlejohn v Norwich Union Insurance Society 1905 TH 374
• Couple married OCP. Wife owned a business that was controlled and
managed by her husband.
• Husband insured the business and signed the documents.
• Wife informed suppliers that her husband’s signature was effective
authority.
• Goods damaged by a fire
• Issues before the court:
• Whether the plaintiff Mr Littlejohn (the husband), had an insurable interest?
• Whether if he had an insurable interest he can sue in his own name?
• Whether he should have disclosed the fact that the ownership in the goods lay
with his wife, and whether failure to disclose this fact avoids (sic) the policy.
• Whether his failure to disclose the fact that the adjoining premises were left vacant
avoids (sic) the policy.
Littlejohn v Norwich Union Insurance
Society 1905 TH 374
• The first two questions before the court are relevant:
• Whether the plaintiff Mr Littlejohn (the husband), had an insurable interest?
• Whether if he had an insurable interest he can sue in his own name?
• Insurable Interest
• Note he was married out of community of property which in those days meant a complete
separation between his and his wife’s respective estates.
• Acted in the joint interests of the couple (they lived off the business profits).
• Husband had possession and a free hand to buy and sell the goods.
• The (old) authorities showed that an insurable interest was sui generis and did not depend
on a jus in re (real right) or jus ad rem (right vindicate possession, right to a thing/property).
Also written ius in re and ius ad rem.
• The issue of ownership dealt in the English Case Lucena v Crawford [1802-1806] R.C. vol 13,
p. 150 where ownership was not a requirement for insurance.
• American Law: Trade Insurance Co. v Barracliff, albeit the relationship between husband and
wife differed in the SA law of the time, showed an insurable interest was not dependent on
legal title.
• The Court also canvasses several other US cases and Canadian Law.
Littlejohn v Norwich Union Insurance
Society 1905 TH 374
• Test the court developed (Objective Test):
• Was the husband in a worse position after his wife’s property
that he had insured was burnt?
• Did he suffer loss as a result?
• He had an interest in the preservation of the preservation of
the property as he benefited from its existence and was
prejudiced by its destcrution.
• It was in his interest that the business should be conducted in
the future as it had in the past.
• He had an insurable interest.
Objective Test
• “Does the insured stand to lose something of
appreciable financial/personal value if the peril
eventuates?”
• “Does the person benefit from the peril not occurring
but suffer prejudice it does?”
• Note that this excludes a mere spes (hope)
• You cannot take an insurance policy out on, say, the Empire
State Building in New York City for fire damage, hoping it will
burn down. That would effectively be gambling. You
personally need to have something to lose.
• Can you insure against Rhodes burning down?
Getting technical
• Note that Reineke argues (last set of slides) that an
insurable interest is not part of the essentialia of a
contract of insurance.
• With insurable interest the issue that arises is whether
the contract should be enforceable by a court.
• Note that gambling (outside licenced gambling) is considered
not enforceable on grounds of public policy.
Insurable Interest & Fraud
• A sells car to B.
• Shortly after B takes possession of the car he is involved
in a motor vehicle accident.
• B who isn’t insured approaches A (who did insure the
car) and A puts through a claim for the damages.
• Does A have an insurable interest?
• Did A commit fraud by claiming he had an insurable
interest?
Courts’ interpretation of “insurable
interest”
• Bar fraud (Car story above) or clearly no insurable
interest (insuring a random house in town), courts adopt
a broad approach and tend to err on the side of the
insured.
Insurable interests
Indemnity Insurance Non-Indemnity Insurance
• Owners and co-owners • Unlimited on your own life
• Tenant – contractual right • Spouse (taken to mean
• Husband and wives whole family who are
(Littlejohn and Phillips) dependent on you (Parents,
• Carriers of goods kids, etc)
• Employees or people who • Partners in a Partnership
drive “on your order and • Named beneficiary in a
with your permission” stipulation alteri (for the
benefit of a 3rd party).
Types of Insurable Interest.
• Property you own, be it corporeal or incorporeal.
• Personal right (e.g. property purchased, but transfer has yet
to be effected – i.e. no uis in re.)
• Steyn v Malmesbury Board of Executors and Trust and
Assurance Company 1921 CPD 96.
• Steyn leased his farm to another person.
• The owner of the property insured a pile of chaff (what is left after
the grain has been removed from the stem of the
wheat/maize/rye/etc.) that was owned by the lessee.
• The presence of the pile of chaff on the property increased the
leasing value of the land. (shown through evidence).
• He had an insurable interest.
Types of Insurable Interest
• Interest in an event or performance
• Think of the cancelation of events / sports tournaments over the COVID 19
pandemic.
• A moral obligation
• Phillips v General Accident Insurance Co (SA) Ltd 1983 SA 652 (W).
• Phillips’s wife lost her crucifix and engagement ring after being conned by a palm
reader “Luigi)
• GAI refused to pay as the jewellery was owned by the wife and the policy was in
the husband’s name.
• De Villiers J applied the test whether there was a wagering/gambling element and
by so doing gave the benefit of the doubt to the insured.
• Husband had a moral, not a legal obligation to replace and that was enough.
• The court argued further that the wife could sell her ring and crucifix if the couple
stumbled on hard times and that represented a further interest that could be
insured.
Types of Insurable Interest
• The insured interest must be lawful.
• Richards v Guardian Assurance Co 1907 TH 24.
• Brothel (house where prostitution is conducted) burnt down.
• To force the insurer to pay would amount to assisting a
brothel, against public policy and not enforceable.
Types of Insurable Interest
• Employees actions
• Refrigerated Trucking (Pty) Ltd v Zive No (Aegis
Insurance Co. Ltd Third Party) 1996 (2) SA 361 (T).
• You can insure your employees actions, the insurance policy
for company G was worded: It also provided that the insurer
would indemnify any person who was 'driving or using the
vehicle on the insured's order or with his permission', provided
that such person was 'not entitled to indemnity under any
other policy’.
• Main thrust of the case was that the deceased a driver himself
had a policy that covered him if he was driving a car other
than his own (ended settling 50:50 the company’s policy and
the policy of the driver).