Back to latest news

Insurable interest in unascertained goods

24th Apr 2023

Quadra Commodities S.A. v XL Insurance Company SE and Others [2023] EWCA Civ 432

By a decision handed down on 21 April 2023, the Court of Appeal (in a judgment given by Sir Julian Flaux Chancellor of the High Court, with which Lord Justice Popplewell and Lord Justice Snowden agreed) grappled with the issue of whether the assured may have an insurable interest in cargoes of grain in circumstances where they did not form part of an identified bulk.

The argument put to the Court of Appeal by the insurers was that even if it could be shown that some goods existed, there could be no insurable interest unless the goods were identifiable and identified, that is that, having been unascertained, they were now ascertained or, if they formed part of a larger bulk, the bulk had to be identified. This argument was premised on the notion that until you know what the subject matter of the insurance is, it is not possible for an insurable interest to attach to that subject matter.

The Court of Appeal found in favour of the assured, finding that there was an insurable interest in the cargoes of grain, and in doing so held that the principle established by the Supreme Judicial Court of Maine in Cumberland Bone Company v Andes Insurance Co 64 Me 466 (1874) should now be recognised as a principle of English law.

In upholding the judgment of Butcher J, the Court of Appeal approved the proposition for which Cumberland Bone has been cited in every edition of MacGillivray on Insurance Law since the first edition in 1912: “if neither property nor risk has passed, payment or part-payment of the price will give the buyer an insurable interest, because if the goods were lost or damaged and the seller was insolvent the buyer might not be able to recover the money which he had paid for them.”

In the Court of Appeal’s judgment, this proposition is not in any sense dependent upon the goods in question being ascertained or part of a bulk that is sufficiently identified in the same sense as required for determining whether or not a buyer has a proprietary interest in goods under section 20A of the Sale of Goods Act 1979.  It was unsound and contrary to principle to seek to impose on the concept of insurable interest as between insured and insurer a requirement concerned with the passing of proprietary interest as between buyer and seller.  It was also against the direction of travel of the authorities for some 140 years, all of which urged the court to lean in favour of finding an insurable interest to exist wherever possible.

To establish an insurable interest in unascertained goods, an insured is not required to prove a proprietary interest.  All that he need do is satisfy the three characteristics derived from the speech of Lord Eldon in Lucena v Crauford (1806) 2 Bos and PNR 29, which are indicated in section 5(2) of the Marine Insurance Act 1906: “a person is interested in a marine adventure 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.

One important practical consequence of the Court of Appeal’s ruling is that insurers may find themselves having to pay several indemnities in respect of the same goods in future cases involving commodities frauds, if more than one insured could establish an insurable interest in those goods.  Contrary to the submission by the insurers that this result was tantamount to converting the policy from a property policy into a financial loss policy, the Court of Appeal was satisfied that there could be no principled objection if that was the consequence of the wording of the policies which insurers had issued and for which they had been paid premium.

The insured was represented by Jawdat Khurshid KC and Anna Gotts who were instructed by Kyri Evagora and Elizabeth Farrell of Reed Smith LLP.

The insurers were represented by Peter MacDonald Eggers KC and Sandra Healy who were instructed by Christopher Pratts and Daniel Jennings of Clyde & Co LLP.

To view a copy of the judgment, please click here.