Dalby v. India and London Life Assurance Co (1854)

There is no statutory definition of insurable interest for life insurance in India. The ratio of Dalby is accepted and applied here, and it decides two of the most heavily examined propositions in the subject: that a life policy is not an indemnity, and that interest is required at the date of the contract and not afterwards.

John Wright took out four policies for £3,000 on the life of the Duke of Cambridge with the Anchor insurance company, a subsidiary. He then took a reinsurance for £1,000 with the principal company. The four original policies issued by the subsidiary were afterwards surrendered; the policy of the principal company continued in force.

When the life dropped, the question was whether the principal company had to pay on a policy at a time when the interest that had originally supported it — the liability under the four surrendered policies — no longer existed.

Must the insurable interest which supported a life policy at its inception continue to exist down to the date of the death?

No. The policy was enforceable. A life policy is not a contract of indemnity. It is a contract to pay a fixed sum on the happening of an event, in consideration of premiums paid; the sum is agreed at the outset and does not vary with the loss actually suffered. Since it does not indemnify, there is nothing that must be measured at the date of the loss, and it is enough that the insurable interest existed when the contract was made.

1. Interest at inception only. This is the single most examinable timing rule in the subject. Contrast s. 8(1) of the Marine Insurance Act 1963, which requires interest at the time of the loss in marine and property insurance, and the fire rule, which requires it at both dates.
2. No subrogation in life insurance. Subrogation is a device for enforcing indemnity; where there is no indemnity there is nothing to enforce. The same is true of personal accident and sickness cover.
3. No contribution between life insurers. A person may take ten life policies and recover on all ten; no insurer may call on another to contribute, because none of them is paying an indemnity.
4. The subject is incapable of being over-valued. Over-insurance is a vice in property insurance because it converts the policy into a wager on the loss; a life cannot be valued at all, so the objection does not arise.

Because interest is required only at inception, an assignee of a life policy need not have any insurable interest of his own. The assignee may be any person. That is why s. 38 of the Insurance Act 1938 regulates assignment as a matter of form and notice — endorsement or instrument, attestation, written notice to the insurer, priority by date of notice — and says nothing about the assignee's interest.

The stock question is: distinguish contracts of indemnity from contracts of fixed benefit, and state the consequences. Open with Dalby, give the four consequences above, and close with the observation that the whole of the difference between Module 1's treatment of life insurance and its treatment of fire, marine and motor insurance flows from this single case.