Compendium of Insurance Law
3
LIFE INSURANCE
OVERVIEW
3.1 English statute law as it affects life insurance is concerned primarily with the regulation of the providers of life insurance. Insurers must be authorised to carry on insurance business under the Financial Services and Markets Act 2000, or must be established and authorised within the EU in order to take advantage of the Single European Licence permitting the selling of insurance throughout the EU (see chapter 1). The scheme of the 2000 Act, following the EU’s Directives, is to achieve a strict separation of life and non-life business for regulation purposes. The 2000 Act also lays down various formalities for the creation of life policies, including a cooling-off period during which the policyholder has a right to cancel the policy.3.2 The only area of substantive law regulated by statute, the Life Assurance Act 1774 as modified by later legislation, is that of insurable interest. The remaining legislation is largely procedural, and governs the assignment of life policies (Policies of Assurance Act 1867) and the payment of the proceeds of policies (Married Women’s Property Act 1882 and Life Assurance Companies (Payment into Court) Act 1896).INSURABLE INTEREST
3.3 The Life Assurance Act 1774, s 1, requires the policyholder to have insurable interest in the life assured. The section, as construed in Dalby v. India and London Life Assurance Co (1854) 15 CB 365, means that insurable interest in the life assured is required only when the policy is taken out, and not when the loss occurs, so that it is permissible for the policyholder to assign the policy to a person not possessing interest at any time after it has been taken out, provided that the policyholder’s intention was not from the outset to act as agent for a person without interest (M’Farlane v. Royal London Friendly Society (1886) 2 TLR 755). The Dalby decision opened the way to the use of life policies as vehicles for investment. The Act does not seek to define insurable interest, a matter which has been left to the courts. Under s 3 of the 1774 Act, the policyholder may not recover any amount beyond the value of his interest, measured as at the date the policy was taken out.3.4 Section 2 of the 1774 Act seeks to prevent evasion of the insurable interest requirement by providing that the names of all interested parties must appear in the policy, failing which the policy is illegal. This caused some difficulty as regards life policies which cover a group of persons some of whom are not identifiable when the policy is taken out, or a group whose membership alters from time to time (eg, a policy on the lives of employees), a problem which was overcome by s 50 of the Insurance Companies (Amendment) Act 1973, which allows insurance to be taken out without naming individual persons insured as long as they belong to a readily identifiable class.3.5 The 1774 Act, by s 4, does not apply to “ships, goods and merchandises”. It has subsequently been decided that the Act has no application to indemnity policies of any type, and in particular does not extend to liability insurance (Siu v. Eastern Insurance Co [1994] 1 All ER 213) and buildings insurance (Mark Rowlands Ltd v. Berni Inns Ltd [1986] 1 QB 211). Moreover, it applies only to life insurance proper: a policy which provides the same benefits on death or on voluntary surrender is nevertheless to be regarded as one which relies on an uncertain event and thus is life insurance (Fuji Finance Inc. v. Aetna Life Insurance Ltd [1997] Ch 173). Indemnity insurances (other than marine policies) are not governed by rules of insurable interest as such, although the law in effect requires insurable interest in two respects:- (a) if the assured does not possess an insurable interest when the policy is taken out, and has no reasonable expectation of acquiring such an interest at some time during the currency of the policy, the policy is a wager and void under s 18 of the Gaming Act 1845:
- (b) if the assured does not possess an insurable interest when the loss occurs, the common law indemnity principle means that he is unable to make any recovery under the policy because he has suffered no loss.
Insurable interest in marine insurance is governed by special rules contained in the Marine Insurance Act 1906, ss 5 to 15 (see chapter 5).