Lorcom Thirteen (Pty) Ltd v Zurich Insurance Company South Africa Ltd (54/08) [2013] ZAWCHC 64; 2013 (5) SA 42 (WCC); [2013] 4 All SA 71 (WCC) (29 April 2013)

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[2013] ZAWCHC 64
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Lorcom Thirteen (Pty) Ltd v Zurich Insurance Company South Africa Ltd (54/08) [2013] ZAWCHC 64; 2013 (5) SA 42 (WCC); [2013] 4 All SA 71 (WCC) (29 April 2013)

Reportable
THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT)
(EXERCISING ITS ADMIRALTY JURISDICTION)
Case No: 54/08
In the matter between:
LORCOM
THIRTEEN (PTY) TD
PLAINTIFF
And
ZURICH INSURANCE
COMPANY SOUTH AFRICA LTD
DEFENDANT
Coram
: ROGERS J
Heard: 8 & 9 APRIL 2013
Delivered: 29 APRIL 2013
______________________________________________________________
JUDGMENT
______________________________________________________________
ROGERS J:
Introduction
The plaintiff (‘Lorcom’) sues the defendant
insurer (‘Zurich’) for R 3 million in terms of an
insurance
policy issued by the latter (then called South African
Eagle Insurance Company Ltd) in respect of a fishing vessel called
Buccaneer
(‘the vessel’). The vessel was lost at
sea on 8 January 2008.
Although certain other defences were raised, the only
two that survived at the trial were [a] whether Lorcom had an
insurable
interest in the vessel; [b] whether its loss fell within
the ambit of the cover. These two points are related, as will
appear.
The only evidence led at the trial was that of Mr DJ
Theart (‘Theart’), Lorcom’s controller. A bundle
of documents
was handed in. There were no factual disputes.
The facts
Theart has been a fisherman for many years. He is a
qualified skipper. In early 2007, at a time when Theart did not have
his own
fishing vessel, he negotiated with a friend of his, Mr JI
Crous (‘Crous’), to buy a vessel,
Buccaneer
. The
vessel was owned by Gansbaai Fishing Wholesalers (Pty) Ltd (‘GFW’).
Lorcom held all the shares in GFW. Crous,
through his 100% members
interest in a close corporation called Millivent Thirty Four (Pty)
Ltd (‘Millivent’), and
Crous’ wife together owned
62,5% of the shares in Lorcom. The other 37,5% of Lorcom was owned
by the Buccaneer Crew Trust.
Crous and Theart agreed that the way in which Theart
would acquire the vessel was by buying the members interest in
Millivent
from Crous, with the latter to arrange that Millivent
became possessed of Mrs Crous’ shares in Lorcom, thus giving
Millivent
a 62,5% shareholding in Lorcom. A purchase agreement was
signed on 20 February 2007. This agreement would give Theart an
indirect
62,5% shareholding in Lorcom and thus in GFW and the
vessel. It seems that
de facto
Theart viewed himself as
obtaining the entire interest in Lorcom, GFW and the vessel. There
was no evidence as to the rights
of the Buccaneer Crew Trust.
In terms of clauses 3 and 4 of the purchase agreement
Theart was to pay R3,8 million for the members interest in
Millivent. A
deposit of R500 000 was payable on signature, the
balance to be paid in instalments of R85 000 per month starting
on
to April 2007 (ie over about 39 months). Crous confirmed in
clause 6 of the agreement that by the date the last instalment was

paid (defined as the ‘effective date’) Millivent would
be the owner of 62,5% of Lorcom and Lorcom would own the fishing

permit and the vessel. At the time the agreement was executed Lorcom
was already the holder of the permit (a permit issued in
terms of
s 13
of the
Marine Living Resources Act 18 of 1998
for the
catching of a specified quota of hake and sole) but the vessel, as
noted, was at that stage still owned by GFW, Lorcom’s

subsidiary. The fishing permit authorised the catching of fish by
use of
Buccaneer.
The permit could not be exploited on any
other vessel without an amendment to the permit.
The agreement provided in clause 7 that control of the
‘assets’ as defined (including the vessel, the permit
and the
shares in Lorcom) would be given to Theart upon signature
and payment of the deposit. Although the members interest in
Millivent
would continue to vest in Crous until the effective date,
the risk, profit and loss in the members interest and the assets
would
pass to Theart upon signature and payment of the deposit.
Clause 7.3 stated that Theart had to insure the assets
for a sum of R2 million and cede the policy to Crous. It was
recorded
that the loss of the vessel would not affect Theart’s
obligation to make payment of the purchase price of the members
interest.
(There was no evidence that the policy in clause 7.3 was
concluded. It is not the policy at issue in this case.)
Theart paid the deposit. Control of the shares in
Lorcom and the vessel then passed to him together with the risk in
the fishing
operation. Although the vessel was owned by GFW, Lorcom
(which Theart now
de facto
controlled) held the permit and
was the party lawfully entitled to catch and sell the fish
contemplated by the permit. GFW made
the vessel available to Lorcom
for this purpose. There was no evidence about the contractual
arrangements if any in that regard
between Lorcom and GFW.
Lorcom obtained an updated fishing permit in October
2007 which allowed it to catch its 2007 quota until 15 January 2008.
It was
while the vessel was fishing for this quota that it was lost
at sea on 8 January 2008.
The policy
The policy was issued by Zurich on 23 February 2007, ie
shortly after Theart signed the purchase agreement. The policy was
issued
pursuant to a proposal form signed by Theart on 9 February
2007. The proposal was evidently made by Theart in anticipation of
the conclusion of the purchase agreement. The proposed insured party
was Lorcom. The proposal form gave the insured values as
being
R2 million for the hull, R1 million for engines and
machinery and R250 000 for other electronic equipment and
fishing
gear. The requested cover was ‘Cover in full as per Institute
Clauses’, this being a reference to the Institute
Fishing
Vessel Clauses issued by the Institute of London Underwriters (‘the
Institute Clauses’). Theart signed the
form as
‘Eienaar/Skipper’.
The proposal form did not state that Lorcom was the
owner of the vessel nor did the form contain questions directed at
ascertaining
the identity of the owner or the nature of Lorcom’s
interest in the vessel. Various certificates were furnished to
Zurich
as part of the proposal indicating or at least suggesting
that GFW was the owner. Mr Howie, who appeared for Zurich, argued
the
case on the footing that Zurich was provided with information
disclosing that GFW rather than Lorcom was the owner of the vessel.
The policy describes itself as a marine policy. In
terms thereof Zurich agrees, in consideration for payment of the
premium, ‘to
insure against loss, damage, liability or expense
in the manner hereinafter provided’. The insured party was
Lorcom. The
period of the insurance was 19 February 2007 to 18
February 2008. The amounts insured and the conditions of insurance
were stated
to be as per an attached schedule.
The attached schedule stated that the ‘subject
matter’ of the insurance was the ‘hull, machinery and
equipment,
excluding fishing gear and dinghies of’ the
Buccaneer
. The sums insured were R3 million for ‘HME’
(hull, machinery and equipment); R3 million for ‘War’;

and R3 million for ‘Liability’. The policy
conditions were stated to be
inter alia
as follows:
‘
Subject
to the Institute Fishing Vessel Clauses (20/07/87) (cancelling
returns only – Clause 23) excluding machinery breakdown

howsoever caused including collision liability as per Clause 18 and
as per Clause 19 in so far as it applies including protection
and
indemnity as per Clause 20.’
Clauses 6 to 17 of the Institute
Clauses relate to the HME insurance while clauses 18 to 20 relate to
liability insurance. In
regard to the former, clauses 6.1 and 6.2
state that the insurance ‘covers loss of or damage to the
subject-matter insured
caused by’ various listed perils,
including ‘perils of the seas’ (clause 6.1.1). From
clauses 16 and 17 it
seems that the measure of indemnity for damage
to HME would in general be the cost of repairs or depreciation in
market value.
In regard to total loss, Lorcom alleged in paragraph 6
of its particulars of claim that the value of the vessel as provided
for
in the policy was R3 million, and this was admitted by
Zurich in its amended plea. The parties appear to have assumed that

in the event of a total loss (as here) the claim would be for the
insured sum of R3 million less the deductible amount specified

in the policy, and they have agreed the quantum on this basis (R2,85
million, after subtracting the 5% deductible). This understanding,

if correct, would suggest that the policy was a ‘valued
policy’, namely a policy where the parties agreed the value
of
the insured property to avoid future dispute over actual value (see
LAWSA
First
Reissue Vol 12 ‘Insurance’ para 13
1
).
So understood, the figure of R3 million for HME was not an
upper limit on Zurich’s liability but the agreed recoverable

sum (subject to the specified deductible) on total loss. Although
this does not appear as explicitly from the policy’s
wording
as I would have expected, I do not need to discuss this aspect
further in the light of the agreement between the parties.
In regard to liability, clauses 18 to 20 indicate that
the liability covered by the policy is liability incurred by the
insured
person to third parties arising from the operation or
ownership of the insured vessel (eg arising from collision).
The Institute Clauses contemplate that the insured
party might not be the owner of the vessel. In clause 6.2 there is
an exclusion
of cover where the loss or damage results from want of
due diligence ‘by the Assured, Owners or Managers’. The
same
phrase appears in other clauses as well.
Lorcom’s alleged insurable interest
Mr RS Van Riet SC, who appeared for Lorcom together
with Mr AA Cuyler, submitted that Lorcom had an insurable interest
in the
vessel by virtue of one or more of the following
circumstances: [a] that it was the sole shareholder of the owner,
GFW; [b] that
in terms of the purchase agreement Lorcom was to
be vested with the ownership of the vessel by the effective date;
[c] that
Lorcom had the right of use of the vessel; [d] that
Lorcom held the fishing permit.
These grounds for Lorcom’s alleged insurable
interest were not pleaded in the particulars of claim but no
exception or objection
was taken by Zurich on that account (cf
Oelrich v General Accident Fire & Life Assurance Corporation
Ltd
1928 OPD 105
at 107-108). Lorcom’s case for its
alleged insurable interest was sufficiently identified in trial
particulars.
The law to be applied
Since this court is exercising its
admiralty jurisdiction the law to be applied is determined by s 6
of the Admiralty Jurisdiction
Regulation Act 105 of 1983. In the
present case the parties in the policy expressly agreed that the
policy was subject to South
African law. In terms of s 6(5) of
the Act this choice prevails. In any event our common law (ie
Roman-Dutch law) would
have applied by virtue of s 6(1)(b) of
the Act, since marine insurance was not subject to admiralty
jurisdiction in South
Africa immediately prior to the coming into
force of the Act in 1983.
2
Insurable interest in general
It is commonly said that in order
for a contract of insurance to be valid the insured party must have
an insurable interest in
the subject of the insurance (for example,
the insured property or the insured life). The foundation of this
requirement in our
law is not free of controversy. In 1879 the
English law of insurance was made applicable by statute to the Cape
Colony.
3
In 1902 the insurance law of the
Cape was in turn by statute made applicable to the Orange Free
State.
4
The Transvaal and Natal applied
Roman-Dutch law though the influence of English law was evident in
some decisions. In 1977 the
applicability of English law in the Cape
and Orange Free State was abolished by the Pre-Union Statute Law
Revision Act 43 of
1977, thus making Roman-Dutch law applicable,
being our general law of contract together with any applicable
principles developed
by the writers specifically with reference to
insurance contracts (see
Mutual
& Federal Insurance Co Ltd v Oudtshoorn Municipality
1985
(1) SA 419
(A)).
An insurable interest was not
originally a requirement of the English common law. Nor were
gambling transactions unenforceable.
5
The requirement of an insurable
interest was introduced by statute, first in the field of marine
insurance by way of the Marine
Insurance Act of 1745. That Act
stated (I summarise) that no insurance should be made on British
ships or on goods on board British
ships if there was no interest
other than the interest created by the policy itself or if the
contract was ‘by way of gaming
or wagering or without benefit
of salvage to the insurer’. The same rule was extended to life
policies by the Life Assurance
Act of 1774. Section 18 of the Gaming
Act of 1845, while not expressly referring to insurance, had the
effect of making void
all contracts of insurance which were wagers.
Section 4 of the Marine Insurance Act of 1906 stated that every
contract of marine
insurance by way of gaming or wagering was void;
and that a contract of marine insurance would be deemed to be a
gaming or wagering
contract where the insured had not an insurable
interest as defined in the Act. The Act stated that a person had an
‘insurable
interest’ if he was ‘interested in a
marine adventure’ and he would be treated as so interested
‘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’.
The leading English cases on
insurable interest have concerned the interpretation of one or other
of these English statutes. For
many years until 1977 this was in
turn the law to be applied in the Cape and Orange Free State.
6
But that ceased to be the position
in 1977. There is no South African statute which lays down the need
for a so-called insurable
interest. In England the statutory
requirement of insurable interest was introduced in order to outlaw
wagers in the form of
insurance contracts and to remove the
incentive which such contracts might provide for people to destroy
the subject-matter of
the policy. We have our own law (both common
and statutory) to regulate gambling. In terms of
s 16
of the
National Gambling Act 7 of 2004
a debt incurred in the course of a
gambling activity licensed under that Act or under provincial law is
enforceable. In respect
of other gambling debts, the common law is
that gambling contracts are not illegal but are stigmatised to the
extent that they
will not be enforced (
Dodd
v Hadley
1905 TS
439
at 442;
Estate
Wege v Strauss
1932
AD 76
at 81; Christie
The
Law of Contract in South Africa
6
th
Ed at 393). If an insurance contract
does not constitute a gambling transaction for purposes of our law,
why should it not be
enforced? There certainly appears to be little
justification for importing requirements from English law which only
ever applied
in the Cape and the Orange Free State and which ceased
to apply there in 1977.
7
However, the question would remain
how, in our law, we are to distinguish an enforceable insurance
contract from one which is
an unenforceable betting transaction.
Voet (
Commentarius
ad Pandectas
11.5.2)
refers to the Roman law regarding games where chance predominates,
such as games of hazard and other similar games (this
is from Sir
Percival’s Gane’s translation – the Latin word
rendered as ‘games of hazard’ is ‘
alea
’
,
meaning dice). He
says that in modern times (ie in Roman-Dutch law) no demands are
enforceable in respect of such games (11.5.6).
In 11.5.8 he
contrasts such transactions with conditional contracts which are
undoubtedly valid. In other words, an uncertain
event may be the
subject of a condition attached to a contract; by contrast, a wager
on the occurrence or non-occurrence of the
same uncertain event is
not enforceable because it then takes on the nature of forbidden
gambling (‘
aleae
prohibitae’
).
Grotius (
Introduction
to Roman-Dutch Law
)
deals with gambling transactions in
the context of conditional contracts. After stating that a contract
may validly be made the
subject of a suspensive condition (3.3.37)
he poses the question (in 3.3.38) whether wagers, namely promises
made upon a condition,
when there is no evidence of an intention to
give, and no other contract is involved in the transaction, are
binding. He states
that in the public interest such wagers are
devoid of effect unless there are reciprocal obligations ‘and
the parties have
some interest in the event, which is the case in
contracts of assurance’ (Lee’s translation
8
).
In
R v Theodosiou
1935 TPD 72
it was
said, following
R v
Bernstein
1927 TPD
487
, that the ordinary meaning of a betting or wagering contract is
‘
a
contract by which two persons agree that, dependent upon a future
uncertain event, one shall win from the other, and the other
shall
pay a sum of money or other stake, neither party having any other
interest in the contract than the stake he will win or
lose, and
there being no other real consideration for the contract’
(at
74-75).
Grotius speaks of some interest in the event while the
above case refers to an interest in the contract. I doubt whether
these
are different concepts. The existence of some such interest is
the thing which takes the contract outside the realm of betting.

When one says that a person has no interest in the event or contract
but for the stake he will win or lose one is saying that
but for the
existence of the wagering contract it would be a matter of
indifference to him whether the event happens or not.
What
distinguishes an insurance contract from a wager is that there is a
reason (apart from the contract) why the happening of
the event
matters to the insured party. Indeed, his interest is that the event
should not happen, so that unlike the person who
places a bet he
does not conclude the contract with the wish that the event will
occur so that he can receive a payment from
the insurer.
There seems no good reason why an enquiry into whether
a person who has concluded a purported insurance contract has an
interest
in the event or contract apart from the insurance contract
itself should be an unduly technical matter. In the context of
insurance
contracts it may do no harm to call this distinguishing
interest an ‘insurable interest’ provided one guards
against
equating this criterion with the English law of insurable
interest. That is not to say that English and other Commonwealth
cases
on insurable interest may not usefully be consulted but it
would be erroneous, in my view, to assume that we have inherited a
body of common law derived from English law. That would be to ignore
the statutory foundation of the English law of insurable
interest
and the legislative basis for its application in the Cape and the
Orange Free State until 1977. I am thus inclined to
agree with the
view expressed by De Villiers J in
Phillips v General Accident
Insurance Co (Pty) Ltd
1983 (4) 652 (W) that a contract of
insurance should be enforceable if it is not a gambling contract at
common law (at 659F-660E
and 661B; and see also
Steyn v AA
Onderlinge Assuransie Assosiasie Bpk
1985 (4) SA 7
(T) at
10E-12I;
Brightside Enterprises (Pvt) Ltd v Zimnat Insurance Co
Ltd
2003 (1) SA 318
(ZHC) at 324B-E). The presence or absence of
what is customarily regarded as an insurable interest is a relevant
aspect of that
enquiry but it is not a self-standing requirement.
This is the view expressed by the learned authors of
Gibson South
African Mercantile Law & Company Law
8
th
Ed at
491. I am not sure that the opinion of the learned author of
Gordon
& Getz The South African Law of Insurance
4
th
Ed
at 92-94 is actually different, since the author does not suggest
that the requirement for an insurable interest in our law
derives
from anything other than the need to overcome the unenforceability
at common law of gambling transactions. In
Lynco Plant Hire &
Sales BK v Univem Versekeringsmakelaars
BK
2002 (5) SA 85
(T) Claassen AJ held that whatever the juridical basis might be it
was clear from the cases that insurable interest was part
of our law
(para 12). If the learned judge meant something other than the
interest necessary to avoid the conclusion that the
contract is an
unenforceable gambling transaction, his view appears to me, with
respect, to pay insufficient regard to the historical
evolution of
our insurance law.
I have not conducted an extensive
enquiry into the Roman-Dutch law of insurance. A requirement of
something akin to insurable
interest is not to be found in the
overview of the contract of insurance in Grotius (
Inleiding
3.24) or Van Leeuwen (
Commentaries
on Roman-Dutch Law
4.9.3
– 4.9.10). These discussions relate to the insurance of ships
and other property – the insuring of human life
was not
permitted in Roman-Dutch law. However, the lectures of Van der
Keessel on Grotius 3.24 (
Praelectiones
and
Theses
Selectae
711-769)
and the notes of CW Decker on Van Leeuwen 4.9.4 contain statements
which would support the view that the insured must
have an interest
in the insured property. And in Van der Linden
Institutes
of Holland
4.6.10
the writer states that if the sum insured exceeds the value of the
interest in the ship, the sum may be reduced to the
actual value of
the interest. The commentaries are framed largely on the supposition
that the insured will be the owner (see
Van der Keessel’s
suggested definition of the insurance contract in Th 712
9
)
though both commentators say that anything can be insured in which
the insured party has an interest (see Van der Keessel Th
716).
There are also statements in Van der Keessel suggesting that the
nature of insurance law dictates that the insured may
not recover
more than the damage he himself has suffered in consequence of the
loss of or damage to the insured goods.
10
It is interesting to note than in
his commentary on Grotius 3.3.48, where Grotius deals with gambling,
Van der Keessel questions
Grotius’ statement that gaming
transactions of all kinds are unenforceable and challenges the view
of other writers that
a general prohibition of this kind can be
derived from the laws governing insurance, since the latter laws
apply only to ships,
commodities and certain other things (see Th
514). In Wessels
Law
of Contract in South Africa
(1937)
the question of insurance is discussed in passing in the context of
the attitude of our law to betting (paras 556-572).
The learned
author opines that the early Dutch writers, like the English
lawyers, regarded insurance contracts as a species of
wager but that
gradually in the interests of trade marine insurance came to be
recognised as a legitimate contract ‘though
hedged in with
numerous statutory restrictions’ (para 571).
It may well be that at the time of
Van der Keessel and the earlier writers the same underlying policy
that led to gambling transactions
being treated as unenforceable
resulted in fairly strict rules about what could be recovered under
insurance contracts. However,
a reading of these writers shows that
there were many restrictions in the Roman-Dutch law of insurance,
often derived from ordinances
and local statutes, which are not part
of our modern law.
11
I thus do not consider that we are
bound to find that an insurance contract which promises to pay a sum
which may differ from
(and exceed) the insured party’s
patrimonial loss is unenforceable. Such a view is not supported by
case law (see below).
It is sometimes said, at least in regard to so-called
indemnity insurance, that the insured must have an interest in the
subject
matter of the policy because the purpose of indemnity
insurance is to indemnify the insured party against actual loss and
there
can be no loss without an interest. In my view, however, this
does not mean that we need a separate requirement of insurable

interest. One must interpret the policy to determine what it means.
If the contract properly construed requires the insured party
to
prove that he has suffered a particular kind of loss in order to
claim then that is what he must prove. As will appear, though,
it is
by no means our law that in every short-term insurance contract the
insured party is limited to claiming his own proven
patrimonial
loss. (In
Colinvaux supra
the learned author states that the
‘indemnity principle’ takes effect as an implied term of
the contract and can be
waived [para 4-05], which correctly locates
this aspect in the sphere of contractual interpretation.)
The courts here and abroad have sometimes stretched the
notion of insurable interest quite far in order to find that a
policy
is enforceable. This is unsurprising. The following statement
by Brett MR in
Stock v Ingles
[1884] 12 QBD 564
at 571 has
often been quoted:
‘
In my
opinion it is the duty of a court always to lean in favour of an
insurable interest, if possible, for it seems to me that
after
underwriters have received the premium, the objection that there was
no insurable interest is often, as nearly as possible,
a technical
objection, and one which has no real merit, certainly not as between
the insured and the insurer. Of course we must
not assume facts which
do not exist, nor stretch the law beyond its proper limits, but we
ought, I think, to consider the question
with a mind, if the facts
and the law will allow it, to find in favour of an insurable
interest.’
12
However, this process of
liberalisation may just mask the fact that the courts are not really
applying a self-standing requirement
of insurable interest with any
clear content provided by law but are rather seeking to determine
whether the insured person’s
interest in taking out the policy
is an acceptable one which removes the contract from the ambit of
gambling. In that sense,
insurable interest in our law would, like
wrongfulness in the field of delict, be a policy-laden assessment
serving to separate
enforceable contracts from those which should in
accordance with the legal convictions of the community be branded as
unenforceable
wagers. One sees this particularly in life insurance,
where our own case law on insurable interest is particularly sparse.
I
do not think that anyone in this country doubts that a parent may
insure the life of a child or that spouses may insure each other’s

lives. In some cases such insurance may have an economic
justification but that is not necessary for the policy to be valid;

the insured party can claim on the death of the insured life without
proof that the death has occasioned him or her financial
loss. All
one can really say is that the law finds it acceptable for persons
in such relationships to insure each other’s
lives, that the
relationship provides an acceptable reason (or ‘interest’
in the event - the insured life’s
death) quite apart from the
reason created by the contract of insurance itself. That is a
policy-laden conclusion, one on which
views could be expected to
change over the years.
13
In cases where an insurable interest
in the conventional sense appears to be lacking, some adherents of
conventional learning
argue that the policies are indeed
unenforceable but that the insurer in the ordinary course will
nevertheless pay out –
so called ‘honour policies’.
14
Into this category have sometimes
been placed cover under extension clauses (where, for example, the
owner of a car obtains cover
in respect of liability which may be
incurred by persons driving the car with his permission – I
shall return to such policies
later) and certain types of life
insurance. This is to sacrifice common sense to dogmatism. If a
particular type of insurance
contract is unenforceable it can only
be because, as with gambling, it is stigmatised as offending public
policy. How then can
it be a matter of ‘honour’ for the
insurer to pay out anyway? And why do courts almost always view with
a sceptical
eye the insurer’s reliance on insurable interest,
as if the disreputable feature were not the insurance contract but
the
insurer’s refusal to pay? And why, most of all, should
insurers be permitted to write such contracts and make profits from

them when the contracts are supposedly frowned upon and when the
insurers fail to tell their clients upfront that they are buying
an
unenforceable policy? The common sense answer is that such contracts
are not in truth frowned upon. They are regarded as fulfilling
a
useful social function. There is some or other element which, at the
level of policy, we find an acceptable reason to justify
the
conclusion of the contract and to remove it from the realm of
gambling. It is these more liberal modern views to which the
notion
of insurable interest, if it is to remain a useful tool, must adapt.
Insurable interest in our case law
Zurich in the present case did not allege or argue that
the policy taken out by Lorcom was an unenforceable gambling
transaction.
Zurich did, however, allege the absence of an insurable
interest. Lorcom for its part did not argue the case on the basis
that
insurable interest was not a requirement of our law. I thus
propose to examine the concept of insurable interest in our case

law, where it has largely been dealt with along conventional lines
as an independent requirement for an enforceable insurance contract.

If Lorcom had an insurable interest in the conventional sense, that
would obviously be a sufficient interest to avoid characterising
the
policy in this case as an unenforceable wager. Conceivably, though,
some lesser interest would suffice if the sole enquiry
were whether
the contract is or is not an unenforceable wager.
In the case of indemnity insurance, it is generally
said that the purpose of the policy is to indemnify the insured
party against
loss. It is this feature that is generally thought to
distinguish such a contract from a wager. If I take out a policy in
terms
whereof I will receive an agreed figure upon the destruction
of an asset owned by a stranger, I and the insurer are merely
betting
on the likelihood of the event occurring. It is thus not
surprising that in indemnity insurance the concept of insurable
interest
is conventionally concerned with identifying those
interests which will cause the insured party to suffer financial
harm if the
insured risk eventuates. Financial loss in this context
naturally includes loss as recognised in our law of damages in the
fields
of delict and contract (ie some diminution in the patrimony
of the insured party) but, as will be seen, it extends beyond
patrimonial
loss so as to include financial prejudice of a kind the
party would not be entitled to recover in delict or for breach of
contract
(see
LAWSA op cit
para 56).
The function of insurable interest in the law of
indemnity insurance and its association with financial loss show
that one cannot
divorce the question of insurable interest from the
type and extent of recovery permitted by the policy. An owner of an
asset
naturally has an insurable interest in the asset, and the
insurable interest will usually be an interest in the full market
value
of the asset, since the destruction of the asset will diminish
the owner’s patrimony by that amount. However, if the asset
is
known to be worth R200 000 but the parties deliberately
conclude a contract that upon destruction the insured will be
paid
R1 million, the owner would lack an insurable interest in the
asset to the extent of the additional R800 000.
Stated
differently, the contract would appear to be a wager or speculation
to the extent of R800 000. (This is not to be
confused with a
valued policy, where the parties
bona fide
settle upon a sum
to be taken as the market value for purposes of the policy.)
It is well established that a person other than an
owner may have an insurable interest in relation to an asset.
However, in the
case of a non-owner the insurable interest (ie the
extent to which he will suffer financial harm from damage to or
destruction
of the asset) will often be less than the market value
of the asset. For example, a person with a contractual right to use
an
asset free of charge for one year will have an insurable interest
in the asset because upon destruction of the asset he will be

deprived of its use for one year. The loss he stands to suffer by
virtue of this circumstance would be less than the market value
of
the asset and would be given, rather, by the market rent of hiring
an equivalent asset (
LAWSA loc cit
para 305). Depending on
the circumstances, though, the lessee’s insurable interest
might also include loss in the form of
a liability to the owner (cf
Van Acherberg v Walters
1950 (3) SA 734
(T) at 740G-H) or a
loss of other benefits associated with the use of the asset (cf
Manderson t/a Hillcrest Electrical v Standard General Insurance
Co Ltd
1996 (3) SA 434
(D) at 442E-443D) .
It follows that one cannot say, merely because the
insured party has an insurable interest in an asset, that he has an
insurable
interest sufficient to sustain cover of the kind for which
the particular policy provides in respect of the asset. Where, for
example, a contract of insurance promises to pay the market value of
an asset upon its destruction, the question will be whether
the
insurable interest the insured has in the asset is an insurable
interest which will sustain insurance against the loss of
the market
value of the asset.
This can be illustrated with reference to the
Manderson
case
supra
. The plaintiff had insured a vehicle against
theft. The vehicle having been stolen, he claimed an amount equal to
the value of
the vehicle. The vehicle in fact belonged to a Mr Sieg,
who was employed by the plaintiff (an electrician) as a
sub-contractor.
At 44F-G McCall J quoted a passage from
MacGillivray
and Parkington on Insurance
8
th
Ed and then said (at
44G-H):
‘
This
passage demonstrates the fallacy of the suggestion by counsel for the
plaintiff that, once an insurable interest is established,
the
insured is entitled to recover under the policy the full value of the
items insured, irrespective of the extent of his loss
or the value of
his interest.’
With reference to the facts of the particular case,
McCall J said the following (440E-I):
‘
Applying
these principles to the facts of the present case, I am of the view
that the plaintiff has not suffered any loss capable
of being valued
as a result of the theft of the car and tools belonging to Mr Sieg.
He certainly has not suffered a loss represented
by the market value
of the vehicle and the tools which were stolen. That is the loss
which has been suffered by Mr Sieg. As appears
from the evidence of
the plaintiff and Mr Sieg which was not disputed, what the plaintiff
had in mind was that if Mr Sieg’s
vehicle was stolen or damaged
and could not be replaced the plaintiff would suffer a loss
representing the loss of profit or loss
of goodwill suffered by his
business as a result of his being unable to supply his customers with
the service performed by Mr Sieg.
That may well have been an
insurable loss and a loss giving him an insurable interest in Mr
Sieg’s motor vehicle, but that
was not a loss insured under the
policy. What was insured against was the loss of or damage to the
vehicles described in the schedule,
including that owned by Mr Sieg,
not the loss caused to the plaintiff as a result of the
unavailability of that vehicle or the
tools which were contained in
it when it was stolen. If one applies, therefore, the test of proof
of loss or damage, in order to
ascertain whether the plaintiff had an
insurable interest in the motor vehicle and tools at the time of the
theft of them, I am
of the opinion that the plaintiff did not have an
insurable interest to the extent of the value of the vehicle and
tools.’
The learned judge recognised that various people could
have different insurable interest in the same asset. He referred to
several
examples but said (443D-E):
‘
Here,
the plaintiff’s interest in the vehicle was, as I have said, an
interest in ensuring that his business did not suffer
as a result of
the loss of or damage to the vehicle but what he is seeking to
recover in this case is not his interest, but the
value of Mr Sieg’s
proprietary interest in the motor vehicle. That, in my view, is not
permitted.’
Armstrong v Bhamjee
[1990] ZASCA 114
;
1991 (3) SA 195
(A) is
another case where a plaintiff (this time a lessor who was not the
owner of the leased premises) was held in effect not
to have an
insurable interest in insurance cover relating to the market value
of leased trading premises, though the court’s
conclusion was
not expressed with reference to insurable interest but was based on
a view that the insured had not proved the
extent of his actual loss
occasioned by the destruction of the premises (at 202C-203D).
(Whether the policy in that case was
framed in such a way that that
the plaintiff could have recovered an amount based on the insurable
interest he had in the rentals
payable by the tenants does not
appear from the judgment.)
Nevertheless, the cases show that
the courts in this country and in other jurisdictions (though to
differing extents) have often
approached the question of insurable
interest quite liberally so as to enable the insured party to
recover what the policy promised.
In this country the liberal
approach can be seen, for example, in regard to insurance taken out
by a person on the assets of
his or her spouse. In
Littlejohn
15
the husband was found to have an
insurable interest in the goods of his wife to whom he was married
out of community of property
in circumstances where the goods
constituted trading assets of the business which the husband
de
facto
controlled
and managed. Wessels J found that the husband had an insurable
interest, observing as follows (380-381):
‘
The
principle to be deduced from these cases appears to be this: If the
insured
16
can
show that he stands to lose something of an appreciable commercial
value by the destruction of the thing insured, then even
though he
has neither a
jus
in re
nor
a
jus
ad rem
to
the thing insured his interest will be an insurable one.
…
Applying
these principles, I ask myself the question whether the husband was
in a worse position after his wife’s property
insured by him
had been burnt, and whether he has suffered loss thereby. He was the
manager of the property, it was almost entirely
under his control,
and from the profits he and his wife carried on the joint household.
It is to his interest that the property
should be replaced exactly as
it was before the fire. In the words of Chambre J,
17
he is
interested in the preservation of the property because he has a
benefit from its existence and prejudice from its destruction.
It is
to his interest that the business should be conducted in the future
as it has been in the past, and therefore I think he
must be held to
have had an insurable interest in the goods insured by him.’
It appears that in
Littlejohn
the husband was
held to be entitled to claim the market value of the destroyed goods
(up to the limit of the policy). He was
not required to quantify and
value his separate interest in controlling the business and earning
profits for the benefit of the
joint household. In other words,
although in law his patrimony was not shown to have been reduced by
the amount payable to him
in terms of the policy, Wessels J
evidently considered that the nature of his insurable interest
entitled him to enforce a policy
which provided cover measured with
reference to the market value of the insured assets.
In
Phillips v General Accident Insurance supra
De Villiers J held that a husband had an insurable interest in an
engagement ring belonging to his wife because he had bought
it for
her and because, although he was under no legal obligation to
replace it if it was stolen, he nevertheless felt under
a moral
obligation to do so (660G-H). As noted earlier, there are statements
in the judgment indicating that De Villiers J favoured
an approach
in which a contract of insurance would be enforceable provided it
was not a betting transaction, thus bypassing the
requirement of
insurable interest
eo nomine
(660A-E). Nevertheless, his
decision was based primarily on a recognition of the husband’s
interest as being an insurable
interest, no doubt influenced by his
sense that if one was not permitted to test the matter solely with
reference to whether
the contract was a betting transaction one
should ‘extend’ the meaning of the term ‘insurable
interest’
to ensure that justice is done between the parties
(660A-B). As in
Littlejohn
, the husband’s interest was
held to be sufficient to entitle him to claim a sum based on the
market value of the stolen
ring.
In
Refrigerated Trucking Pty Ltd v Zive NO (Aegis
Insurance Co Ltd, Third
Party)
1996 (2) 361 (T) the
question was whether the owner of a vehicle had an insurable
interest to sustain insurance in respect of
third party liability
incurred by persons driving the vehicle with his consent. As is
typical in clauses of this kind (known
as extension clauses), the
provision of this cover was not a
stipulatio alteri
for the
benefit of the driver but constituted cover which only the insured
owner could enforce. Hartzenberg J referred to various
cases
including
Littlejohn
and
Phillips
and then offered the
following definition of ‘insurable interest’ for
purposes of indemnity insurance (372F-H):
‘
It
seems then that in our law of indemnity insurance an insurable
interest is an economic interest which relates to the risk which
a
person runs in respect of a thing which, if damaged or destroyed,
will cause him to suffer an economic loss or, in respect of
any
event, which if it happens will likewise cause him to suffer an
economic loss. It does not matter whether he personally has
rights in
respect of that article, or whether the event happens to him
personally, or whether the rights are those of someone to
whom he
stands in such a relationship that, despite the fact that he has no
personal right in respect of the article, or that the
events does not
affect him personally, he will nevertheless be worse off if the
object is damaged or destroyed, or the event happens.’
Hartzenberg J then applied this view of insurable
interest to find that the owner of the vehicle had an insurable
interest to
obtain cover in respect of third party liability
incurred by drivers of his vehicle. It was, he said, of great
economic (though
not legal) interest to the owner, for example, that
members of his family should be insured against third party
liability (372I),
presumably meaning that a decrease in the
patrimony of a member of the household (by virtue of having incurred
third party liability)
could put economic strain on the household as
a unit. He said, further, that the owner has an obvious interest in
cases where
the driver is one for whom he is vicariously liable but
that the owner also has an economic interest in avoiding contentious

litigation over the question whether the driver is indeed one for
whom he is vicariously liable (372J-373D). In terms of this decision

the owner could enforce the policy and recover from the insurer the
amount of the liability incurred by the driver to the third
party
without proving that in the particular circumstances of the case he
is in fact vicariously liable or that the driver’s
liability
will put such stress on the household unit that the owner will need
to contribute an additional sum to the household’s
maintenance
equal to the amount of the liability incurred by the driver. Once it
is found that the owner has an insurable interest
in obtaining
insurance measured with reference to third party liability incurred
by drivers of his vehicle, he can claim an amount
equal to the
liability without proving that he has suffered a loss in an
equivalent amount.
An extension clause was also the
subject of
Unitrans
Freight.
18
The insured party was JG
Olieverspreiders (‘JGO’), the insurer was Santam. The
extension clause provided cover, enforceable
by JGO, in respect of
any liability incurred by a person driving JGO’s vehicle on
its order or with its permission. The
vehicle was involved in an
accident at a time when it was being driven by one Shai, an employee
of an entity called De Kroon,
which was using the vehicle with JGO’s
permission. As a result of the accident Shai, and De Kroon as Shai’s
employer,
incurred liability towards Unitrans. One of the questions
was whether the insured party, JGO, had an enforceable claim against

Santam. Nugent JA rejected an argument that De Kroon had acquired
any rights under the policy (ie the extension clause was held
not to
be a
stipulatio
alteri
). Nugent JA
nevertheless held that the clause was enforceable by JGO. Although
the supposed absence of an insurable interest
on JGO’s part
was not a point raised by the exception which the court was called
upon to decide, Nugent JA said the following
in that regard (para
17, footnotes omitted):
‘
It has
been suggested that an indemnity given in that form might be void for
lack of an insurable interest on the part of the insured
– and
that has been held to be the case in other jurisdictions – but
that is not a ground upon which the particulars
of claim were
attacked and it has not been argued before us. Indeed, it would be
surprising if an insurer who has given an earnest
undertaking to
indemnify a person in what is clearly a policy of insurance and not a
gambling contract (as pointed out by
Chaskalson
(loc cit)
,
the requirement of insurable interest is designed to ensure that
insurance policies are not used as a basis of gambling) were
to
repudiate its obligations on those grounds.’
In extension clauses of this kind,
the insured party (JGO in the above case) cannot be said to have
suffered a patrimonial loss
but, as was held in
Refrigerated
Trucking
, the
insured party may nevertheless have an insurable interest in
enforcing the insurer’s promise to pay to the insured
an
amount equal to the liability incurred by the driver. What the
insured party has to prove in such a case is not that he has

incurred a liability or suffered a loss but that the driver has
incurred a liability. Although the insured party may need to
have
some interest in obtaining cover of that kind, the interest does not
need to be of a kind which, upon the happening of the
event insured
against, will result in the insured party suffering a loss.
19
Insurable interest in the present case
Reverting to the present case and dealing first with
interpretation of the policy, I do not read it as saying that Lorcom
must
prove that it has suffered patrimonial loss. Zurich agreed in
the policy to ‘insure against loss, damage, liability or

expense in the manner hereinafter provided’. The ‘loss’
and ‘damage’ referred to in this phrase do
not mean
patrimonial loss suffered by Lorcom. The words ‘loss”
and ‘damage’ in the sense of patrimonial
loss would be
tautologous. In the context of the schedule and Institute Clauses,
‘loss’ means the physical loss of
the vessel and
‘damage’ means physical damage to the vessel. The
schedule describes the ‘subject-matter’
of the policy as
being the hull, machinery and equipment of the
Buccaneer
.
Clause 6 of the incorporated Institute Clauses states that the
insurance covers ‘loss of or damage to the subject-matter

insured’ arising from various causes, ie the loss of or damage
to the vessel. Throughout the Institute Clauses the word
‘loss’
is used with reference to the physical loss of the vessel. The word
‘loss’ also does not mean
‘lost by the insured
party’, as I think Mr Howie for Zurich argued. The ‘loss’
of a vessel in the context
of the policy means the event of the
vessel’s loss due to sinking or destruction. The parties
apparently understood their
contract as meaning that Zurich promised
to pay Lorcom R3 million if the vessel was lost (the insured value
of R3 million seems
to have been a
bona fide
assessment of
the vessel’s value). In the case of damage to the vessel
(which is not at issue in this case), the Institute
Clauses appear
to contemplate payment of a sum calculated with reference to cost of
repairs or depreciated market value.
I thus find that the policy does not require Lorcom to
prove that the loss of the vessel caused it to suffer a patrimonial
loss,
whether in the amount of R3 million or any other sum, or to
prove that Lorcom lost the vessel (in the sense of ceasing to own
it). On the assumption that an insurable interest is an independent
requirement of our law, the enquiry as I conceive it is whether

Lorcom had an interest sufficient to render enforceable a policy
providing cover measured with reference to the value of the
vessel.
The insurable interests, other than ownership, which
would commonly be accepted as sustaining insurance of that kind
would include
a purchaser to whom risk in the subject-matter has
passed, a mortgagee (to the extent of his secured claim) and a
lessee on whom
the risk of destruction or damage is imposed by the
lease. In these cases the insurable interest is generally such as to
cause
the insured party, upon destruction of or damage to the
insured asset, to suffer a patrimonial loss equivalent to the loss
of
or reduction in the market value of the asset. However, in the
field of property insurance
Littlejohn
and
Phillips
show that an insurable interest need not be such as in law to cause
the insured party to suffer a patrimonial loss equal to the
market
value of the insured asset; and in liability insurance
Refrigerated
Trucking
and
Unitrans
are by analogy to similar effect.
I have already summarised the four aspects of Lorcom’s
alleged insurable interest. As to Lorcom’s right to use the
vessel and to exploit the fishing permit by so doing, there was no
evidence as to the terms of Lorcom’s right of use. I
do not
know whether rent was payable and whether a period of use was
stipulated. Since GFW was Lorcom’s wholly-owned subsidiary
and
since Lorcom’s affairs were
de facto
under the control
of Theart, it appears likely that Lorcom was intended to have the
use of the vessel until on the effective
date Lorcom became the
owner. However, it was not definitely proved that Lorcom had a
contractual right to this effect though
I have little doubt that
this was the factual expectation.
On the conventional view of insurable interest,
Lorcom’s temporary right of use of the vessel and its right to
earn profits
from the vessel’s exploitation would not be
sufficient to sustain cover measured with reference to the market
value of
the vessel (cf
Manderson supra
). The temporary right
of use would sustain cover related to the cost of hiring a
comparable vessel and for loss of profits, neither
of which the
policy in the present case purported to provide. It was also not
proved that there was an agreement between Lorcom
and GFW that in
the event of the loss of or damage to the vessel Lorcom would be
liable to GFW to compensate the latter for the
value of the vessel
or the depreciation in its value. Lorcom did not allege in its trial
particulars that it was under any such
liability and did not argue
that its insurable interest lay in the existence of such a
liability.
However, Lorcom’s right of use did not stand
alone. The purchase agreement required Crous to procure that Lorcom
was by
the effective date the owner of the vessel. And, of course,
Lorcom had an interest in the vessel via its 100% shareholding in
GFW.
As to the first of these additional factors, Lorcom was
not a purchaser, let alone a purchaser at risk. Lorcom was not a
party
to the purchase agreement, the immediate subject-matter of
which was the members interest in Millivent. The purchase agreement

does not spell out how Crous was to procure that Lorcom by the
effective date became the owner of the vessel nor was this explained

in evidence. It is nevertheless clear to me that it would not have
been consistent with the purchase agreement for this to have
been
done in a way which imposed on Lorcom any external financial
liability, since then Theart would effectively (through his
indirect
shareholding in Lorcom) have been required to pay yet again for the
vessel. (Whether the transfer of the vessel to Lorcom
could
permissibly have been accompanied by the creation of a liability to
GFW I do not know though this would have been of less
moment to
Theart and Lorcom: GFW was a wholly-owned subsidiary of Lorcom, and
any asset which GFW had in the form of a loan claim
against Lorcom
was indirectly an asset of Lorcom itself.) I thus consider that
Lorcom had a factual expectation of becoming the
owner of the vessel
in a way which would not impose any obligation on it to an external
party. This factual expectation would
be thwarted if the vessel was
destroyed or damaged prior to the effective date, since in terms of
the purchase agreement Crous
did not carry the risk of destruction
or damage; if the vessel was lost or damaged prior to the effective
date, Crous did not
have to procure that the vessel was repaired or
that an equivalent vessel or its value was provided to Lorcom.
I consider that the combination of Lorcom’s right
of use, its well-founded expectation that such use would continue
until
it became the owner of the vessel, and its well-founded
expectation that Crous by virtue of his contract with Theart would
procure
that Lorcom became the owner of the vessel by the effective
date (subject, however, to the loss of or damage to the vessel, the

risks of which Crous did not bear) gave Lorcom and insurable
interest in cover measured with reference to the market value of
the
vessel. Such cover would enable Lorcom, if the vessel was lost or
damaged prior to the effective date, to be placed in the
same
position as if Lorcom’s right of use had continued as expected
and as if the contract between Crous and Theart had
followed its
expected course.
The matter is, however, placed beyond question in my
view by the added consideration that Lorcom was the 100% shareholder
of GFW.
The 100% shareholder of a company is obviously not the owner
of the company’s assets. In
Stellenbosch Farmers Winery Ltd
v Distillers Corporation (SA) Ltd & Another
1962 (1) 458
(A), not an insurance case, the court was called upon to decide
whether a shareholder nevertheless had a ‘financial
interest
in’ the business of the company for purposes of s 166(v)
of the Liquor Act 30 of 1928. The majority answered
this question
affirmatively (at 473H per Van Blerk JA; 485F-486B per Wessels AJA).
At least in the case of a 100% shareholder,
there would appear to be
a direct correlation between the company’s financial welfare
and the shareholder’s financial
welfare.
In examining whether shareholding gives the shareholder
an insurable interest in an asset of the company, several questions
must
be distinguished. The first is a threshold question: whether
the shareholding provides an insurable interest at all in relation

to a policy which provides cover measured with reference to the
market value of an asset of the company. The second is whether,
if
such an interest is recognised, the insured shareholder’s
claim is limited to the negative effect which the loss of
or damage
to the asset has on the value of his shares or whether he can claim
the loss of or diminution in the market value of
the asset. The
answer to the second question may depend not only on the law’s
approach to insurable interest but also on
the interpretation of the
particular policy.
In England the conventional view is
that a shareholder, even a 100% shareholder, does not have an
insurable interest in the assets
of the company. This appears from
the judgment of the House of Lords in
Macaura
v Northern Assurance Co Ltd & Others
[1925]
AC
619
(HL).
Lord Buckmaster said the following (at 626-627):
‘
Turning
now to his position as shareholder, this must be independent of the
extent of his share interest. If he were entitled to
insure holding
all the shares in the company, each shareholder would be equally
entitled, if the shares were all in separate hands.
Now, no
shareholder has any right to any item of property owned by the
company, for he has no legal or equitable interest therein.
He is
entitled to a share in the profits while the company continues to
carry on business and a share in the distribution of the
surplus
assets when the company is wound up. If he were at liberty to effect
an insurance against loss by fire of any item of the
company’s
property, the extent of his insurable interest could only be measured
by determining the extent to which his share
in the ultimate
distribution would be diminished by the loss of the asset – a
calculation almost impossible to make. There
is no means by which
such an interest can be definitely measured and no standard which can
be fixed of the loss against which the
contract of insurance could be
regarded as an indemnity. … In the present case, though it
might be regarded as a moral certainty
that the appellant would
suffer loss if the timber which constituted the sole asset of the
company were destroyed by fire, this
moral certainty becomes
dissipated and lost if the asset be regarded as only one in an
innumerable number of items in a company’s
assets and the
shareholding interest be spread over a large number of individual
shareholders.’
Lord Sumner also found that the appellant had no
insurable interest (at 630):
‘
It is
clear that the appellant had no insurable interest in the timber
described… He had no lien or security over it and,
though it
lay on his land by his permission, he had no responsibility to its
owner for its safety, nor was it there under any contract
that
enabled him to hold it for his debt. He owned almost all the shares
in the company, and the company owed him a good deal of
money, but,
neither as creditor nor as shareholder, could he insure the company’s
assets. The debt was not exposed to fire
nor were the shares, and the
fact that he was virtually the company’s only creditor, while
the timber was its only asset,
seems to me to make no difference. He
stood in no ‘legal or equitable relation to’ the timber
at all. He had no ‘concern
in’ the subject insured. His
relation was to the company, not its goods, and after the fire he was
directly prejudiced by
the paucity of the company’s assets, not
by the fire.’
Lord Wrenbury put the matter more pithily (at 633):
‘
My
Lords, this appeal may be disposed of by saying that the corporator
even if he holds all the shares is not the corporation, and
that
neither he nor any creditor of the company has any property legal or
equitable in the assets of the corporation.’
The reference to standing in a ‘legal or equitable
relation’ to the property or having ‘property legal or
equitable’
in the assets harks back to the definition of
insurable interest in the English Marine Insurance Act of 1906.
Even in England, it has been questioned whether the
outcome in
Macaura
was correct. In
Inland Revenue
Commissioners v Cleary
[1966] 2 All ER 19
(CA) Salmon LJ said
the decision in
Macaura
was ‘a strange result,
especially as the rule that an insurance policy cannot be enforced
by the assured unless he has an
insurable interest in the thing
insured was evolved only to prevent gambling and wagering
transactions from being enforced in
our courts’ (at 24F-G).
More recently, though, Mr AD Coleman QC, sitting as a
Deputy Judge of the High Court, found in
Sharp & Another v
Sphere Drake Insurance plc & Others, The Moonacre
[1992] 2
Lloyd’s Rep 501 (QB) that in the particular circumstances of
that case the shareholder (Mr Sharp) had an insurable
interest in
the yacht owned by the company (Roarer). In addition to having 100%
of the shares in Roarer, there were two powers
of attorney executed
by the company in favour of Sharp (one for two years, the other for
five years) which, in the judge’s
view, conferred on him
authority to enjoy the use of the yacht for his own purposes and to
exercise such control of it as he
saw fit (512). The effect of the
powers was that the company vested in Sharp very wide powers of
management and control and the
right of disposal of possession of
and title to the yacht (509). The conferral of these rights was very
beneficial to Sharp ‘in
as much as they were entirely
consistent with the purpose for which he had caused Roarer to
acquire the vessel, namely so that
he personally could enjoy its use
and occupation’ (509). In the course of finding that Sharp had
an insurable interest
in the yacht, the judge reviewed the relevant
insurance legislation and said the following (at 510):
‘
Accordingly
the essential question to be investigated in those cases which since
1745 have been concerned to test the existence
of an insurable
interest has been whether the relationship between the insured and
the subject matter of the insurance was sufficiently
close to justify
his being paid in the event of its loss or damage, having regard to
the fact that, if there were no or no sufficiently
close
relationship, the contract would be a wagering contract…
There is thus in a wagering
contract the essential feature that neither party has any interest in
the outcome of the future uncertain
event save for that amount which
will be won or lost under the contract. Conversely, if the outcome of
the future uncertain event
upon the happening of which one party is
entitled to be paid by the other would or might but for the contract
cause loss or damage
to the payee, then one essential characteristic
of a wagering contract has gone and there is nothing in the Gaming
Act, 1845 or
in subsequent betting and gaming legislation which
renders that contract void and unenforceable. Neither the words of
any statute
since 1845 nor any judicial pronouncement suggest that
there should be a category of contracts of insurance which were not
wagering
contracts but which on account of the absence of an
“insurable interest” should not be enforceable.
Accordingly, in
approaching the construction and application of s 5
of the Marine Insurance Act it is, in my judgment, right to proceed
on
the assumption that, provided the insured has sufficient interest
in the subject matter of the insurance to prevent his contract
being
a wagering contract, he is entitled to enforce that contract.’
It should be noted that in
The Moonacre
the
powers vested in Sharp, while beneficial to him, were to be
exercised on behalf of and in the name of the company (509).
He was
not given the power, for example, to sell the yacht and keep the
proceeds for himself. Nevertheless, his 100% shareholding
coupled
with the rights he enjoyed under the powers of attorney were held to
give him an insurable interest. Furthermore, this
insurable interest
was evidently regarded as sufficient to entitle him to claim the
insured value of the yacht. He was not required
to prove a
diminution in the value of his shares or the amount of the loss he
had suffered due to the thwarting of his rights
of use and control.
Although Sharp’s claim against the insurer failed on other
grounds, his claim against the insurance
broker for negligence
succeeded. The damages recoverable from the broker were held to be
equal to the insured value of the yacht
on the basis that this was
the sum Sharp could have recovered from the insurer but for the
broker’s negligence (at 527).
Whether or not the judgment in
Moonacre
correctly represents the law of England cannot be
confidently stated but I see no reason why our more liberal law on
the question
of insurable interest should repudiate the outcome
reached in the case.
The strongest rejection of
Macaura
in Commonwealth
case law is the judgment of the Supreme Court of Canada in
Constitution
Insurance Company of Canada & Others v Kosmopoulos & Another
[1987] 1 SCR 2.
There one
Kosmopoulos was the sole shareholder of a company which conducted
the business of manufacturing and selling leather
goods. A policy
was taken out in Kosmopoulos’ name ensuring the company’s
assets against fire. The company’s
assets having been damaged
by fire, the insurers repudiated liability on the basis that
Kosmopoulos had no insurable interest.
The Supreme Court held that a
finding that Kosmopoulos had an insurable interest could not on the
facts of the case be based
on piercing the corporate veil (10-12)
nor on the basis of treating Kosmopoulos as a bailee (12-13). If
there was an insurable
interest it could only be by virtue of
Kosmopoulos’ shareholding in the company, which meant deciding
whether to follow
Macaura
.
Wilson J, who delivered the main
judgment, began by contrasting the differing formulations of
insurable interest in the famous
English case of
Lucena
v Crauford
[1806] EngR 12
;
(1806)
127 ER 630.
Lawrence J (one of the judges who had given his opinion
on various questions posed prior to the hearing in the House of
Lords)
formulated a test which has become known as the ‘factual
expectancy test’. In terms of his formulation there need not

be a legal right in the asset; it is enough that the insured is so
circumstanced with respect to the asset that there is a ‘moral

certainty’ of an advantage or benefit to him from the asset
(at 643). Lord Eldon in the House of Lords, however, was not

prepared to accept anything short of a right in the property or a
right derivable out of some contract about the property. A
‘moral
certainty’, apart from being in his view difficult to define,
would enable many people to insure the same
thing (at 650-652).
20
Wilson J considered that Lawrence J’s view of an
insurable interest was to be preferred. She expressed the opinion
that
the greater certainty which Lord Eldon thought was provided by
his more restrictive test was illusory (15-16). She considered that

the danger of multiple insurance was also illusory, since the
insured would have to disclose all circumstances relevant to the

risk. The curb on excessive insurance is in the hands of the
insurers themselves – they can decline the risk or insert

protective clauses. A broadening of the concept of insurable
interest would allow for the creation of more socially beneficial

insurance policies with no increase in risk to insurers (16-17).
Wilson J pointed out that in England
Macaura
represented a triumph of Lord Eldon’s view in
Lucena
over that of Lawrence J (18) but she preferred Lawrence J’s
more flexible approach, noting that the factual expectancy test
had
prevailed in other fields of insurance such as life and health
insurance (21). In assessing whether the more restrictive
test of
insurable interest should continue to be applied in Canada, Wilson J
had regard to the policies underlying the requirement
of an
insurable interest:
[a] As to the public policy against wagering, she
thought that in the modern world it was easy to overestimate the
danger of insurance
contracts being used to create wagering
transactions. There were many more convenient devices for the serious
gambler (22). Insurable
interest was not an ideal mechanism for
combating gambling, since only the insurer could invoke it; it was
not available to any
public watchdog (23). All that should be
required to combat wagering is some form of valuable relationship to
the occurrence. The
policy against wagering is satisfied by any
valuable relationship which equals the pecuniary value of the
insurance (23-24).
[b] The public policy of restricting the insured to full
indemnity for his loss is inconsistent with a restrictive test of
insurability,
since people who suffer genuine loss may be excluded
(24-25).
[c] The moral hazard that the insured might be tempted
to destroy the subject-matter of the insurance is not increased by
accepting
Lawrence J’s broader test. Indeed, the moral hazard
in such cases may be less since in the type of case excluded by Lord
Eldon’s more restrictive test the insured party is usually not
in possession or control of the subject matter (25). Insurance

concepts cannot on their own prevent deliberate causing of harm; the
primary burden in that regard lies with the criminal justice
system
(26).
Wilson J observed that if shareholders try to bypass
the company’s creditors by arranging for insurance in their
own names,
there are various devices of corporate law which could be
deployed to ensure that the company and other interested parties are

not unfairly treated (27-28). She also noted that the restrictive
approach adopted in
Macaura
had been abandoned in the United
States (28-29).
Wilson J concluded that by virtue of
his 100% shareholding Kosmopoulos had a sufficient interest in the
company’s assets
to support the insurance policy and was
entitled to recover under it (30). Although there are passages in
the judgment which
might suggest that the shareholder’s
pecuniary interest in such cases is confined to the effect on his
shares, Wilson J
also envisaged that a shareholder could insure to
the full extent of the value of the underlying assets and receive
the balance
for the benefit of the company. In the event, there was
no enquiry in
Kosmopoulos
into the effect
which the damage to the goods had had on the value of Kosmopoulos’
shareholding. In the trial court Holland
J had awarded Kosmopoulos
the full amount of the damage to the goods on the basis that
Kosmopoulos was in truth the owner of
the goods (8). Although
Holland J’s approach of lifting the corporate veil was not
followed in the Court of Appeal of Ontario
21
or in the Supreme Court, Holland J’s
award was nevertheless upheld in both appellate courts on the basis
of the insurable
interest in the form of Kosmopoulos’ 100%
shareholding (8-9 and 30).
It is not necessary to accept every
aspect of the reasoning in
Kosmopoulos
.
However, the flexible approach adopted in that case gives me
confidence, having regard also to our own cases to which I have

referred, to hold that Lorcom’s 100% shareholding in GFW,
taken together with its right of use and its expectancy of becoming

owner on the effective date, is a sufficient interest to render
enforceable an insurance contract providing for payment of a
loss of
the market value of the vessel. I cannot say that the value of
Lorcom’s shareholding in GFW was reduced by an amount
equal to
the market value of the vessel (ie the agreed figure of R3 million).
That would depend on GFW’s financial position
overall, of
which there was no admissible evidence. GFW’s net asset value
may, depending on its other assets and liabilities,
have been less
than R3 million, it might may even have been nil or negative. But I
do not think this matters. A 100% shareholding
in a company gives
the shareholder an interest in the company’s assets sufficient
to rationally sustain insurance cover
expressed with reference to
the underlying value of the assets. The enforceability of the policy
should not depend on whether,
by virtue of the fluctuating fortunes
of the company’s affairs as a whole, the loss of the insured
asset will affect the
shares’ value in a corresponding
amount.
22
Indeed, recognition of shareholding as conferring an
insurable interest in the corporeal assets of a company would
probably be
of little utility if the insured were confined to
claiming the negative effect on the value of his shares rather than
the value
of the property. I say so, because in the usual policy
insuring physical assets the contract as a matter of interpretation
only
promises to pay an amount determined with reference to the
value of the insured asset. The policy does not provide cover in
respect
of the insured party’s shares but in respect of the
underlying asset. If the shareholder claims a certain sum on the
basis
that his shares have diminished in value by that amount, the
insurer would, on the wording of most standard property insurance

policies (including the one between Lorcom and Zurich), be entitled
to reject the claim on the basis that policy does not promise
to pay
an amount so computed. The fact that the amount claimed happens to
be the same or less than the value of the destroyed
or damaged asset
would not mean that the claim is one for the loss or diminution in
value of the insured asset. And it is quite
conceivable that the
negative effect on shareholding may exceed the value of the
destroyed or damaged asset, because shares are
not invariably valued
on the company’s net asset value but may be valued on the
company’s profitability. The market
value of a stand-alone
asset belonging to a company may be less than the negative effect
which the destruction of that asset
would, in the context of the
company’s business as a whole, have on the value of the
shares. Shareholding, as a basis for
an insurable interest in the
company’s assets, thus differs essentially from the insurable
interest held by a purchaser
at risk, a mortgagee or lessee who
carries the risk of the property’s destruction. In the latter
class of case the loss
or diminution in the value of the insured
asset is, by virtue of the nature of the interest, the measure of
the insured party’s
loss. It follows that if, as I consider,
shareholding is to be recognised as a sufficient interest to sustain
standard property
insurance in respect of the company’s
assets, the shareholder must be entitled to claim what the contract
promises upon
the destruction of or damage to the asset, namely the
loss or diminution in the value of the insured asset.
The view I have expressed above appears to accord with
that of JR Midgley in his article
Spouses and Shareholders –
Insurably Interested
(1985) 102
SALJ
466.
The learned
author supports the more flexible approach of the American and
Canadian courts to the right of a shareholder to take
out cover on
the company’s assets. He submits (482-483) that the nature of
the property is a relevant consideration. He
argues that ‘[i]nsuring
a major asset upon which the economic livelihood of the company
depends amounts surely to the safeguarding
of an interest and not a
wager’. He would treat ‘minor assets’ like
furniture and stationery on a different
footing, contending that the
value of shares will usually be unaffected by their destruction so
that such insurance would amount
to a wager. For present purposes it
is unnecessary to comment on the validity of this distinction since
there is no doubting
that GFW’s vessel was a ‘major
asset’. What is of particular interest is what the author says
on ‘how
the shareholder’s interest is to be calculated’,
ie what he can recover from the insurer upon destruction of the

asset (483). He alludes to the difficulty in valuing shares and the
various methods by which such value can be measured, including
the
shareholder’s proportionate share in the excess of assets over
liabilities. He makes the point that a shareholder has
an interest
in the preservation of a company’s assets even where its
liabilities exceed its assets. He continues (484):
‘
In my
view the value of the shareholder’s interest in the
preservation of a particular asset of the company is not dependent

upon the size or nature of the company’s debts, for,
irrespective of the debts, the interest remains. Creditors’
interests
in the insured assets are therefore immaterial. The
shareholder’s interest in the event is proportionate to his
interest
in the company. The extent of his recovery is accordingly
determined by dividing the value of the asset at the time of its
destruction
by his proportionate shareholding in the capital of the
company. The advantage of adopting this formula is its simplicity.’
I do not need to comment on the case
where the shareholder does not hold 100%. But the learned author’s
view means that where
the shareholder, as here, has a 100%
shareholding, he is entitled to recover the amount stipulated in the
policy with reference
to the asset’s value. As I have already
said, this appears to be what happened in
Kosmopoulos
and
The
Moonacre
. It also
seems to have been the approach in a number of American cases.
23
This result seems not very different in principle from
the insurable interest which, in the case of extension clauses, the
owner
is regarded as having in the contingent liability of persons
driving the vehicle with his consent. He may or may not in the
particular
circumstances of the case be financially prejudiced by
the incurring of liability by the driver but this does not affect
his
right to recover the driver’s full liability from the
insurer. Just as the expectation in such cases may be that the
insured
owner will use the proceeds of the policy to settle the
driver’s liability (though he cannot be compelled by the
driver
to do so in the absence of a separate contract to that
effect), so the shareholder may be expected to use the proceeds in a
case
such as the present one to recapitalise the company in an
amount equal to the value lost by the company. The insurance
certainly
puts the shareholder in a position to do so.
It is perhaps useful to remind oneself that a
broadening of the concept of insurable interest, and a recognition
of the right
of a 100% shareholder to enforce a policy providing
cover measured with reference to the market value of an asset of the
company
without proof that the shareholding has been diminished in
value by the same amount, will not prejudice insurers. An insurer

takes on the risk of paying out the diminution in market value of
the insured property on the basis of an actuarially assessed
premium
related to the likelihood of the risk eventuating. To the extent
that the nature of the insured’s interest is relevant
to the
risk and to the premium, the insurer can call for the information it
regards as relevant and can disavow liability if
there has been
misrepresentation or non-disclosure. The fact that each of several
different insurers may, for a properly calculated
premium, have to
pay out the full value of the property to several different people
cannot be regarded as inequitable to the
insurers. Each of them took
on the risk for an acceptable premium. Unless misrepresentation or
non-disclosure is available as
a defence, why should they not pay?
If there is a legitimate reason not to recognise such insurance
claims, it is not concerned
with protecting insurers but has to do
with the policy considerations relating to speculation and gambling.
If one asks the simple question whether Lorcom’s
contract with Zurich was a gambling transaction, ie a contract where
Lorcom
had no interest in the possible loss of the vessel other than
the interest created by the insurance contract itself, the answer

would in my view clearly be no. By virtue of Lorcom’s 100%
shareholding in GFW, its right of use of the vessel and its

expectation of becoming the owner thereof pursuant to Theart’s
contract with Crous, Lorcom had an obvious interest in the
loss of
or damage to the vessel. Lorcom’s best interests would have
been served by the preservation of the vessel. It concluded
the
insurance contract in case, against its desire, the vessel was lost
or damaged, and not because it wanted the vessel to sink
so that it
could claim under the policy. For reasons I explained earlier in
this judgment, I believe that this is the simple
answer which our
law should recognise. However, I have in any event concluded that
Lorcom’s claim can be upheld even if
one assumes that there is
a separate requirement of insurable interest.
Conclusion and order
The parties have agreed that the sum to be awarded on
the total loss of the vessel, if Lorcom is otherwise entitled to
succeed,
is R2,85 million. As to
mora
interest, Zürich
repudiated the claim on 16 April 2008 which I think can fairly be
taken as the date from which interest
should run. Lorcom engaged two
counsel which I believe was justified by the amount at issue, the
complexity of the legal issues
raised and the importance of the
matter to Lorcom.
I thus make the following order:
(a) The defendant is directed to pay the plaintiff the
sum of R2,85 million together with interest thereon at the prescribed
rate
of 15,5% from 16 April 2008 to date of payment.
(b) The defendant is further directed to pay the
plaintiff’s costs, including the costs of two counsel.
______________________
ROGERS J
APPEARANCES
FOR PLAINTIFF: RS Van Riet SC (with AA Cuyler)
Instructed by:
Visage Vos
Cape Town
For Defendant: R Howie
Instructed by:
Webber Wentzel
Cape Town
1
The
chapter on insurance in
LAWSA
is
by the same authors as Reinecke
et al
General Principles of Insurance Law
2002
(LexisNexis) and has substantially the same text so I shall not
refer further to the latter work in this judgment.
2
See
Hare
Shipping Law & Admiralty
Jurisdiction in South Africa
2
nd
Ed at 29 and footnote 126. Marine insurance can
now form the subject of a maritime claim by virtue of para (u) of
the definition
of ‘maritime claim’ in s 1 of the
Act.
3
General
Law Amendment Act
8 of 1879 (Cape).
4
General
Law Amendment
Ordinance 5 of 1902 (OFS).
5
See,
in general, on the historical evolution of insurable interest in
England
Colinvaux’s Law of
Insurance
8
th
Ed paras 4-01 to 4-03;
MacGillivray
on Insurance Law
11th Ed paras 1-021
to 1-044.
6
Though
the extent to which the English statutes applied has been questioned
: see Reinecke
Versekering sonder
Versekerbare Belang?
(1971)
CILSA
193
at 198-202.
7
Cf
Midgley
Spouses and Shareholders –
Insurably Interested?
(1985) 102
SALJ
466
at 469. English commentators
themselves seem currently to regard English rules of insurable
interest as unduly rigid and restrictive:
see
MacGillivray
supra
para 1-049.
8
The
quoted words in the translation are, in Grotius’ original
Dutch, the following: ‘
ende den
handelaers aen het indien waer ghelegen, ‘t welck gebeurt in
verseeckeringen
’
.
9
‘
Dit
is dus ‘n benoemde, konsensuele, bona fidei kontrak
waarkragtens daar teen ‘n vaste prys onderneem word om in
te
staan vir die skade wat die saak van ‘n ander moontlikerwys
uit hoofde van ‘n onsekere gevaar kan ly’ (Tr
HL Gonin
in the edition by Van Warmelo
et
al
)
10
See
Th 717 Note
8; Th 738.
11
For
example, the Roman-Dutch law, apart from prohibiting life insurance,
imposed manifold restrictions in respect of property
insurance:
carriers and wagoners could not take out insurance; in general
one-tenth of the value of the insured goods had to
remain uninsured
at the owner’s risk (and there were complicated rules as to
how the one-tenth was to be calculated); in
respect of insured goods
carried by ship, the merchant had to arrange for the goods on
arrival to be offloaded within 15 days;
a ship which failed to
return within a stated period could be presumed lost; premiums which
did not exceed 7% of the insured
value had to be paid in cash, and
so forth.
12
See
also
Feasey v Sun Life Assurance
Company of Canada
[2003] EWCA Civ 885
para 7. And in South Africa see
Littlejohn
v Norwich Union Fire Insurance
Society
1905 TH 374
at 381 (where Wessels J incorrectly
attributed the statement to Lord Esher); cf
Unitrans
Freight Pty Ltd v Santam Ltd
2004 (6)
21 (SCA) para 17.
13
Cf
LAWSA op cit
para
90.
14
See,
for example,
Vandepitte v Preferred Accident Insurance
Corporation of New York
[1932] All ER Rep 527
(PC) at 534B-C;
Old Mutual Fire & General Insurance Company of Rhodesia (Pvt)
Ltd v Springer
1963 (2) SA 324
(SR) at 331D-H.
15
Footnote
12 above.
16
The
report uses the word 'insurer" but this is clearly a
typographical error.
17
This
is a reference to Chambre J who gave one of the opinions in the
leading English case of
Lucena v Crauford
[1806] EngR 12
;
(1806) 127 ER 630.
However, Wessels J errs, with respect, in attributing the words in
question to Chambre J – they come from the opinion of
Lawrence
J at 643.
18
See
footnote 12
supra
.
19
In
McClain v H Mohamed & Associates
[2003] 3 All SA 707
(C) Blignault J
accepted the
stipulatio alteri
construction of extension clauses,
relegating to a mere procedural matter the provision which stated
that only the insured party
could claim under the policy. On this
view, the relevant insurable interest is that of the driver (as an
additional insured party
when he accepts the benefit of the
extension), not that of the primary insured party (paras 35-37). I
doubt whether that view
of the matter can survive
Unitrans.
Moreover, the notion that the insured
party can, by a procedural arrangement, be given the right to sue on
a claim vesting in
the driver appears to be inconsistent with other
cases which hold that an agent cannot by agreement sue on a claim
vesting in
his principal (
Sentrakoop
Handelaars Bpk v Lourens & Another
1991
(3) SA 540
(W);
Myburgh v Walters NO
2001 (2) SA 127
(C) at 130C-E). This
view of the extension clause would also imply that the insured
party, as an agent for the driver in whom
the claim vests, is
subject to directions from the driver (who would be his principal),
which seems unlikely to be the insured
party’s intention.
20
The
precise nature of the procedure followed in
Lucena
is difficult to grasp from the report.
In the event, and despite their differing formulations, both
Lawrence J and Lord Eldon
found that the Commissioners did not have
an insurable interest in their own right.
21
Reported
at (1983) 149 DLR (3d) 77.
22
I
have said that there was no admissible evidence concerning the value
of Lorcom's shares in GFW. There is included in the trial
bundle a
copy of GFW’s audited financial statements for the year ended
31 March 2008, with comparative figures for 31 March
2007. Based on
the depreciated cost price of assets, the balance sheet reflects an
excess of assets over liabilities of R566 65
in the 2007 year
and R568 996 in the 2008 year. It appears that the vessel (if
it is included in the balance sheet at all)
must have had a
substantially higher market value than the depreciated cost figure
reflected for fixed assets in the balance
sheet. If one were to
substitute the depreciated figure with the insured value of R3
million, it would appear that on an NAV
valuation of Lorcom's shares
in GFW the loss of the vessel would have caused the value of the
shares to reduce by the value of
the vessel. However, the financial
statements were not referred to in evidence and there was no
agreement that documents in the
bundle were proof of the truth of
their contents.
23
In
Providence Washington Insurance Company
v Stanley
[1968] USCA5 1188
;
(1969) 403 F.2d 844
the
United States Court of Appeals 5
th
Circuit said that ‘[t]he overwhelming
majority of jurisdictions, including Alabama, recognize that a
stockholder in a corporation
has a legal insurable interest in the
corporation’s property in proportion to the amount of his
stockholding’. The
amount recovered from the insurer in that
case appears to have been the amount of damage to the underlying
property. In the early
case of
Seaman v
Enterprise Fire & Marine Insurance Co
(1883)
18 Fed Rep 250
the insured was a 3/16
th
shareholder in a company which owned a boat. In a
jury trial Brewer J found that the insured was entitled to insure
his proportionate
interest in the boat and charged the jury to award
the insured 3/16
th
of
the value of the boat if they found for him on other disputed
factual questions. (In in a later decision on an application
for a
retrial the same judge did allow the possibility that in particular
circumstances – though not those of the case
before him –
the market value of the company’s asset might not be a proper
measure of the recoverable amount.) In
American
Indemnity Co v Southern Missionary College (
1953)
195 Tenn 513
, which concerned a theft policy, the
majority (Neil CJ with three other judges concurring) awarded the
insured (the sole shareholder)
the amount of cash stolen from the
company. Tomlinson J dissented, holding that the insured had not
suffered a ‘direct
loss’ as contemplated in the policy,
its loss being the loss of the net profit, if any, which might have
been earned had
the company’s money not been stolen.