How is property insurance related to the principles of insurable interest, utmost good faith,proximate cause,?

Question

indemnity, subrogationand contribution.

Answer 1

Afraid I have to disagree with or at least supplement some of the previous answer.

Insurable interest... you do not need to own or be responsible for an item in order to have an insurable interest, it is where you would suffer a financial loss if an event occurred. The previous answers example is correct, but does not give the whole story. In another example..... if you owned a restaurant across the street from say a cinema, you could show that if that cinema were to burn down, your business would suffer ...... hence you have an insurable interest and could purchase insurance against that risk (i.e. the cinema burning down). Of course you could only claim an amount equal to the amount of profit that would have arisen from business you lost, not the value of the cinema.

Utmost good faith .... or 'In Fidentia' in latin (the motto of Lloyds of London, where insurance really began) is a long held precept of Insurance in that it is the insured's obligation to disclose all material facts in connection with the risk being insured regardless of whether or not they were specifically asked about, NOT just that they truthfully answer all questions.

Hence you cannot say something like..... 'well you never asked if I hosted meetings of "Arsonists Anonymous" in the same room as my matchbox collection'.... as a reason for not declaring it with your fire insurance proposal.

The insurer is bound by similar conduct, they must at all times act in 'utmost good faith', they cannot just change or impose policy restrictions without full disclosure.

Proximate cause..... NOT as stated in the previous answer. Proximate cause in an insurance context is a principle which relates to determining which/who's insurance pays out, i.e. what was the originating cause of the loss. In this famous true(ish) example.... an improperly moored boat (B1) drifted away and crashed into another boat (B2) which was sailing the river,  B2 crashed into a bridge, the bridge collapsed, blocked the river, which in turn flooded adjacent properties (P1).



Under the principle of proximate cause the claim for flood damage to P1 would not paid by the flood insurers of P1, nor by the owners of the bridge whose collapse caused the flood, or by the insurers of B2 which damaged the bridge, but by the liability insurers of boat B1 since it was the incorrect mooring of that craft that was the proximate cause of the loss.

In practical terms P1 flood insurers would probably pay the claim to the insured and then subrogate back down the chain via Bridge and B2 to B1

Hope this helps.

Answer 2

Insurable interest - you cannot insure property which you do not own or are not otherwise responsible for (e.g. a tenant can insure against accidently damaging a flat and having to pay the landlord for the repairs).

Utmost good faith - when taking out the policy the insured must be truthful about all relevant features of it.

Proximate cause - the policy must specify what types of damages or causes are covered (e.g. must state whether or not damage by termites, or by vandals, is included).