Some Legal Problems Related to Insurable Interest in Ships

Gemilerde Sigortalanabilir Menfaate İlişkin Bazı Hukuki Sorunlar

A. Samim ÜNAN

Insurable interest is a key element in the field of marine insurance. In almost all jurisdictions this issue was evaluated and there are specific rules provided for insurable interest. This notion plays a decisive role in terms of the validity of the insurance contracts and in many other respects (the measure of indemnity, subrogation, multiple insurances). This paper focuses on certain problems that arise in conjunction with insurable interest in ships. First, some basic principles pertaining to the notion of interest in general will be briefly examined. Thereafter some different aspects of insurable interest in ships will be explained. In that context, the respective interests of the proprietor, operator (bare-boat charterer), and mortgagee will be evaluated with rules and principles generally accepted in civil law countries.

Insurable Interest, Marine Insurance Law, Marine Insurance, Ship.

Sigortalanabilir çıkar, deniz sigortaları alanında anahtar bir unsurdur. Birçok hukuk sisteminde bu meseleyle ilgili incelemeler yapılmış ve kurallar öngörülmüştür. Bu kavram, sigorta sözleşmelerinin geçerliliği bakımından ve birçok başka konuda (tazminat, halefiyet, çifte sigortalar) belirleyici bir rol oynamaktadır. Makalemiz, gemilerdeki sigortalanabilir çıkar ile bağlantılı olarak oluşan belirli sorunlara odaklanmaktadır. Öncelikle genel olarak çıkar kavramına ilişkin bazı temel ilkeler kısaca incelenecektir. Bundan sonra, gemilerdeki sigortalanabilir çıkarın bazı farklı yönleri açıklanacaktır. Bu bağlamda, mal sahibinin, işletenin (çıplak gemi çartereri) ve ipotek sahibinin çıkarları, Kıta Avrupası Hukuku’nun benimsendiği ülkelerde genel kabul görmüş kural ve prensipler çerçevesinde değerlendirilecektir.

Sigortalanabilir Çıkar, Deniz Sigortaları Hukuku, Deniz Sigortaları, Gemi.

I. INTRODUCTION

Insurable interest is a key element also in the field of marine insurances. Almost all jurisdictions dealt with that thorny issue and provided specific rules. For example Marine Insurance Act 1906 (MIA) contains more than ten sections about “interest” (sections 4 to 15). This notion plays a decisive role with regards to the validity of the insurance contracts and in many other respects (the measure of indemnity, subrogation, multiple insurances).

Pursuant to the principles of contract law, the insurer must fulfil its contractual obligation in accordance with the boundaries put by the law¹ . The requirement of insurable interest constitutes one of these boundaries in loss insurances. The policyholder (or in the case of insurance to the benefit of third person, the insured) must have (latest at the moment of the peril) an objectively measurable and deserving to be legally safeguarded interest otherwise it will not be under the protection of the insurance. The value of the interest corresponds to the insurance value which in principle must be equal to the sum insured (the maximum indemnity payable by the insurer). In loss insurances, the policyholder (or the insured) should not receive more than the loss or damage amount which sets the limit for the measure of indemnity and the extent to which the interest is prejudiced² .

This paper will be focused on certain problems that arise in conjunction with insurable interest in ships. First some basic principles pertaining to the notion of interest in general will be briefly examined. Thereafter some different aspects of insurable interest in ships will be commented. In that context, the respective interests of the proprietor, operator (bare-boat charterer), and mortgagee will be evaluated with rules and principles generally accepted in civil law countries.

II. INSURABLE INTEREST

Interest is a broad notion used in many contexts and very difficult to define. In Latin, it means “what matters”; “what is useful or advantageous”.

Although defining the notion of interest in legal terms may not be a good idea since the replacement of a common notion that everybody understands, be it by intuition (every person knows where his interest lies and naturally tends to safeguard it) can create confusions and complications³ , the need for clarity pushes the legislators (or the high-level courts) to adopt definitions.

In the field of insurances, law experts made efforts to define the “insurable interest” and in some countries insurance contract acts (ICAs) give a legal definition.

Wandt’s definition is as follows: “For insurance law purposes interest means a legal relationship a person has in respect of an asset the encroachment of which causes an economic disadvantage to that person”⁴ . Armbrüster defines the interest as “a legal relationship that constitutes the ground for which the policyholder or a third person insured suffers a disadvantage by the materialisation of the risk”⁵ .

The disadvantage may appear as the unplanned (necessary) expenses or deprivation of (realisable) planned incomes that must be based on legal relationships generating the policyholder’s or insured’s insurable interest. Therefore, a person who bears the consequences of a loss or damage in the absence of any insurance has an insurable interest⁶ .

In many countries interest is a key element of insurances contracts. Where interest is lacking the contract is not valid. This strict rule was seen necessary for drawing a borderline between gambling and insurance.

Fixed sum insurances and indemnity insurances use different concepts of interest. In life insurances which are the most common type of fixed sum insurances, the interest may also be “moral” whereas in indemnity insurances it must be of pecuniary nature. Moral interest gives rise to important problems of interpretations as to its existence and proof. The affection for another, as long as it remains in the inner world of the concerned person is not detectable neither measurable and presumptions come necessarily into play: Couples will be deemed to have interest in the continuation each other’s life. Similarly, children will be regarded as having interest in their parents etc. However, it is not easy to draw a borderline in other relationships. Turkish Court of Cassation ruled that blood-brotherhood⁷ can justify insurable interest⁸ .

According to the prevailing approach in many civil law countries (Germany, France) the requirement of insurable interest exists only in respect of loss (indemnity) insurances. This point of view is based on the assertion that an insurable interest would be deemed to deserve protection when the infringement of it may cause an economic disadvantage. This is the so-called “coverage of the concrete need”⁹ . In our view instances where the policyholder receives more than its actual loss are also justified by that principle: In contracts containing a “reinstatement clause”¹⁰ (where the insurer upon the loss of the insured asset undertakes to finance the purchase of a brand new one) the total payment made by the insurer will include the value of the insured asset -for example a machine- at the moment of the peril and an additional amount to enable the policyholder to acquire a brand new asset^11,12 .

Some scholars are of the opinion that the notion is not needed in insurances protecting the patrimony as a whole (such as liability insurances and insurances aimed to cover expenses for example those incurred for health care or in respect of legal litigations)¹³ in contrast to insurances granting cover only for some defined assets whereas others think that whenever the (total) value of the assets are under the danger of diminution, the threatened person may be regarded as having an insurable interest.

The interest being the relationship between a person and an asset, given the variety of rights that may generate the said relationship, it would be appropriate to underline that in property insurances interest is a “generic term” encompassing all sorts of situations where the bearer of the interest is likely to be adversely affected from an economic point of view upon the occurrence of a peril causing harm to the asset which is the subject matter of the insurance.

Although the interest requirement is essential to make a difference between gambling and insurance nowadays the interest plays an important role in determining whose interest is under the insurance protection and what type of interest is covered by the insurance contract.

The same person may have various interests with regards to the same asset: For example, the proprietor of an asset is interested in preserving the value of the asset within his patrimony. But he may be interested (also) in realizing a benefit by selling or renting it or at least in making sure that his current expenses with respect of the subject matter insured (for example a commercial enterprise) are covered. Further, persons other than the proprietor such as the lessee or the mortgagee may (also) be interested in the preservation of the same asset¹⁴ .

To be validly covered an interest must be legal, in other words there must be no legal obstacle to take out insurance for such an interest. For example, coverage of the liabilities that may arise while using the asset for illegal purposes (ship engaged in human traffic or contraband of psychotropics) would be null and void.

When doubt persists on the coverage of an interest, to dispel it one has to determine first “which interest is aimed to be covered by the insurance contract” and then “whether that interest is insurable”¹⁵ .

In ascertaining the interest covered in the insurance of a particular asset, it is useful to commence by investigating the possible various interests related to that asset. Even if there is only one person concerned as insured, this person may possibly have different sorts of interest, as underlined above. The situation becomes more complicated when several persons are interested at the same time. Their interests may be similar (co- proprietors) or different as in the case of the proprietor and mortgagee or the seller who retains the title of ownership and buyer.

The need to know whose interest is covered often leads to make a choice between a covered interest and an uncovered interest. The general approach in the field of insurances would be in the direction of maintaining the insurance cover, in other words towards opting for the covered interest. This solution would be in harmony with the will of the parties.

In order to make a decision about the interest covered the point of departure will be the contractual stipulations, mostly the general contract terms (the so-called “general conditions of insurance”). However, the economic background too must be taken into account. The insurance contract serves to remedy the economic disadvantages. Therefore, the legal context should not be decisive alone. An important attachment point is the person or persons who may be economically affected as a result of the risk happening (persons who suffer from the loss of or damage to the asset insured)¹⁶ .

Thus, where doubt exists, the bearer of the interest may be determined by way of interpretation. For example:

- If an asset sold with retention of title is insured, the buyer who bears the risk (the economic burden) until the transfer on him of the right of property (ownership) can be regarded as the bearer of the interest.

- In the case the right of property on the asset insured is transferred as guarantee of a loan, the borrower’s interest in the re-acquisition of that asset may be relevant.