Feasey v Sun Life Assurance Company of Canada & Ors

An insurable interest is identified by construing the policy and examining the insured’s relationship to its subject matter. The concepts of subject matter, interest and value are distinct but interrelated. A potential legal liability may provide an insurable interest in property, lives or contingencies if the policy is properly framed to embrace it. The interest need not be insured exclusively through liability insurance.

For a policy governed by section 1 of the Life Assurance Act 1774, the interest must exist and be capable of pecuniary valuation when the policy is made. Under section 3, its value is assessed at that time on the maximum possible loss, rather than retrospectively by reference to the loss ultimately incurred.

Steamship insured its members against liabilities arising from death, injury and illness connected with entered vessels. It replaced conventional reinsurance with a personal accident and illness policy under which Syndicate 957 paid fixed benefits when defined persons suffered specified contingencies. Syndicate 957 obtained reinsurance from Sun Life and Phoenix.

Langley J held in [2002] EWHC 868 (Comm) that Steamship had an insurable interest and that the policy was not invalid under sections 1 or 3 of the Life Assurance Act 1774. He also held that Centaur’s October 1998 endorsements did not bind Sun Life for 100% of an additional year after Centaur’s authority to write new Phoenix business had ended.

The appeals concerned whether Steamship had an insurable interest in the defined persons and whether Centaur had exercised its authority to bind Sun Life for the whole of the extended reinsurance.

1. By a majority, the appeals were dismissed. Waller and Dyson LJJ held that Steamship had an insurable interest. Ward LJ dissented on that issue. All three Lord Justices agreed that the October 1998 endorsements did not bind Sun Life beyond its existing 50% participation.

2. Per Waller LJ, the subject matter of insurance is ascertained from the policy’s terms, while the nature of the insured’s interest is discovered from all the surrounding circumstances. Whether the policy embraces that interest is a question of construction. The court should not impose a rigid rule that an interest arising from potential liability can be protected only by liability insurance. The legal concepts used in property or single-life cases should not be applied mechanically to a policy covering many lives and events over an extended period.

3. The policy was governed by section 1 of the Life Assurance Act 1774. It was designed to cover losses arising from Steamship’s obligations to its members. The fixed benefits were triggered by injury or illness within the defined class, but the subject matter was broad enough to embrace Steamship’s potential liability. That potential liability was a pecuniary interest which existed and could be valued when the policy was made. The policy was therefore not null and void under section 1.

4. Per Dyson LJ, potential liability for the insured contingency can provide an insurable interest in that contingency. The fact that the interest could support liability insurance does not prevent the same interest from supporting another form of insurance properly framed to embrace it. The counter-insurance in Dalby demonstrated that a potential liability to pay on a death could support an insurable interest in the life itself.

5. Section 3 of the 1774 Act did not prevent recovery. The interest was valued when the policy was made by reference to the maximum possible liability. Sun Life had not shown that Steamship’s possible liabilities could not reach the contractual limits. Subsequent recoveries under excess-of-loss or top-up cover did not retrospectively reduce the value of the interest under the disputed policy.

6. On the authority issue, the endorsements had to be construed objectively against the known background. Although Centaur possessed authority to bind Sun Life for 100%, possession of authority did not establish its exercise. The endorsements extended existing contracts from inception, preserved all other terms and conditions, and contained no language increasing Sun Life’s 50% line. Sun Life was therefore bound only for 50%.

1. Court of Appeal (Civil Division): By [2003] EWCA Civ 885, dismissed the appeals. Waller and Dyson LJJ upheld the finding of insurable interest; Ward LJ dissented on that issue. The court unanimously upheld the decision on Centaur’s authority.
2. High Court, Commercial Court: Langley J held in [2002] EWHC 868 (Comm) that Steamship had an insurable interest, that sections 1 and 3 of the Life Assurance Act 1774 did not defeat recovery, and that Centaur had not bound Sun Life for 100% of the extended period.