Insurable Interest

The leading statutory definition of insurable interest in English law comes from the Marine Insurance Act 1906, whose section 5 provides that every person has an insurable interest who is interested in a marine adventure, and goes on to explain what that means in practice: a person is interested where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof. Although drafted for marine policies, this formulation — a legal or equitable relationship to the subject matter that exposes the insured to genuine benefit or loss — is the classic articulation of the doctrine that courts and practitioners refer back to across insurance law generally.

The reason the doctrine matters is set out in section 4: a contract of marine insurance made without insurable interest, and with no expectation of acquiring one, is treated as a wagering or gaming contract and is void. The Act specifically catches policies expressed as 'interest or no interest', 'without further proof of interest than the policy itself', or 'without benefit of salvage to the insurer', deeming these terms evidence that the arrangement is a bet on an event rather than genuine insurance (subject to a narrow exception where there is no possibility of salvage at all). This is the underlying policy rationale for the doctrine across insurance generally: without a requirement of insurable interest, an insurance policy would be indistinguishable from a wager on someone else's loss, which the law refuses to enforce.