Insurable Interest in Insurance- Adopting A Commercial Solution

Broadgrain Commodities Inc v. Continental Casualty Company [2017] ONSC 4721

Does a CIF seller still have an insurable interest in a cargo policy after the goods are delivered to the carrier (i.e. risk of loss or damage to the goods is transferred to the buyer under the CIF contract)? This was the main debate in the case before the Ontario Superior Court of Justice (Canadian Marine Insurance Act 1993 is similar to the unamended version of the UK Marine Insurance Act 1906).

Here,a cargo of 26 containers of sesame seeds were sold by the claimant (Broadgrain) on CIF basis and insured by the insurers under an open policy which intended to insure the claimant and its property as well as the property of others in respect of which the claimant had an obligation to insure under various contracts entered into during the insurance period. The cargo was loaded on board the carrying vessel in Nigeria in October. It was common ground that the risk had passed to the buyer at that stage. The full contract amount was paid by 12 December by the buyers. Under the sale contract, the title in the good was to pass upon payment and the buyer granted the seller a security interest in the cargo until all amounts had been paid. When the vessel arrived at its destination, Xingang, on 17 December, it was discovered the goods had been damaged during transit and the claimant sought indemnity under the insurance policy from the underwriters.                    

The insurers moved for a summary judgment to dismiss the action on two grounds: i)the claimant did not have “insurable interest” in the goods at the time of the loss; and ii) the claimant did not sustain any loss as, despite the damage to the goods, it was paid in  full by the buyer for the shipment in question.

On the first point, the insurers sought to rely on two Federal Court decisions(Green Forest Lumber Ltd v. General Security Insurance Co of Canada [1977] 2F.C. 351 (F.C.T.); aff’d [1978] 2 F.C. 773 (F.C.A), aff’d [1980] 1 S.C.R. 176 and Union Carbide Corp v. Fednav Ltd [1997] F.C.J.No. 665 (F.C.T)) which contained statements made in obiter to the effect that, where goods are shipped on CIF terms and the goods are loaded on board the ship, the seller no longer has an insurable interest and cannot claim under a policy of insurance. 

The court, rightly so, indicated that the Supreme Court of Canada in Kosmopoulosv. Constitution Insurance [1987] 1 SCR 2 has adopted a non-technical definition of “insurable interest” pointing out that any real interest of any kind in a marine adventure should qualify as an insurable interest. It was stressed that a contrary solution would act to the detriment of international trade. On that basis, it was held that in the present case even though the risk passed upon loading in October, and the title passed upon payment, the seller’s retention of security interest would qualify as an equitable relation to the adventure such as to give the seller an insurable interest that subsisted throughout the voyage.

However, judge’s finding on the insurable interest point was not adequate to secure victory for the claimant.  The summary judgment for insurers was granted on the second ground. Accordingly, it was held that the claimant had suffered no loss as payment had been made by the buyer in full and the assertion that the buyer had reduced payments on subsequent cargoes was dismissed for lack of evidence.

The case is a yet another illustration of the fact that when defining insurable interest, courts are taking a more liberal stance as advocated in various English judgments (e.g. The Moonacre [1992] 2 Lloyd’s rep 501; National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyd’s Rep 380 and The Martin P [2003] EWHC 3470 (Comm)) and not likely to follow the lead of Macaura v. Northern Assurance Co Ltd (1925) 21 LIL Rep 333 to insist that a legal or equitable relation must exist between the policy and the subject matter insured. It is safe, therefore, to say that courts are likely to find insurable interest in cases where they are convinced that the assured has not entered into the policy as an act of wager or is not attempting to make an illegitimate gain from the insurance transaction and as long as some kind of connection (even merely economic) between the insured property and the assured exists.