Insurable interest is one of the five basic principles of marine insurance. It is necessary to understand that the property is not an insurable interest in itself; it is subject matter of insurance as from MIA (Marine Insurance Act) 1906 Section 5 Sub1. According to the Sub 2 a person has insurable interest in property when he will be financially prejudiced by its loss or damage and when he will financially benefit from its continued existence.
According to MIA 1906 Section 6 Sub 1, the assured must be interested in the subject-matter insured at the time of the loss, but he does not necessarily need to be interested in it when the insurance is effected. But according to Sub 2 an assured cannot acquire insurable interest after he’s aware of the loss. If both parties were unaware of the loss at the moment of effecting a contract of marine insurance, the assured is entitled to be recovered, whether it was before or after the loss (when the contract is effected on the ‘lost or not lost’ principle).
Also, if one doesn’t have any insurable interest at the time of effecting the insurance contract this contract is deemed to be a “wagering” or “gaming” contract and, as such, since it is void as stated in the MIA 1906 Section 4. No penalty is imposed upon such person under MIA 1906, but under MIA 1909, dealing with Gambling Policies such a person is in contravention to the law and is liable to the penalties stated in the Act.
The insurable interest can be transferred from one person (assignor) to another (assignee) who will benefit from using it as fully as it would do the previous insurable interest owner and be prejudiced if the assignor for example breached a principle of good faith. It’s important to distinguish between assignment of interest which is the transfer in the interest of the subject matter of the insurance and the assignment of policy which is the transfer of the beneficial rights afforded by the policy.
There are three main nodivisions in which the majority of interests fall which are hull interests, cargo interests, and incidental interests.
The simplest forms of insurable interest are ownership and partial ownership, but there’re also some others such as shipping costs, insurance charges, anticipated profit, defeasible interest/contingent interest bottomry and respondentia, forwarding expenses, agent’s commission in cargo nodivision; insurance premiums, charterer’s interest, charterer’s freight, mortgagees’ interest, contractual liability third party liability in hull nodivision and master’s and seamen wages reinsurance as incidental interests.