Sometimes It's What the Policy Doesn't Say That Counts!



The insured firm was enjoying a period of rapid growth. At some point in time, its shareholders (using an associated company) purchased another corporation and stored part of its property in the insured’s warehouse. This information was not transmitted to their agent/broker for insurance purposes, nor was any other coverage in force on the property.

When the loss occurred, the insured included the stored property on their claim. Unfortunately, the property was quite clearly owned by an uninsured separate legal entity (notwithstanding the common shareholding) not named on the policy and which could not prove insurable interest under the policy, even though the property fell within the description on the policy schedule. There was no qualification of ownership or responsibility included in the description that could have created a link to the named insured!

Ultimately, the missing coverage was caused by the fact that the named insured was limited to a specific entity and the property description in the policy did not include any coverage for property not owned by that entity.

Insurable Interest

The relevance of insurable interest in property insurance policies is usually described in the policy with wording such as “We will not pay you more than your financial interest in the Covered Property.” 1 The insured must have some form of recognizable interest in the property. In the benchmark case of Lucena V. Craufurd (1806), legal precedent for insurable interest was set and explained, in part, as follows:

“A man is interested in a thing to whom advantage may arise or prejudice happen from circumstances which may attend it. Interest does not necessarily imply a right to the whole or part of a thing, nor necessarily and exclusively that part which may be the subject of privation, but having some relation to or concern in the subject of the insurance which relation or concern may be so affected as to produce a damage, detriment or prejudice to the person insuring.”

Even though the precedent is in archaic language, it is still relevant and does allow some latitude to interests in property other than just pure 100 percent ownership. This...

“Their inability to provide proof was directly related to the way in which the insured was named and described in the policy.”