Insurable Interest (England)

In this High Court of Justice decision the insured claimed under a marine cargo open policy. The insured had purchased cargos of grain under various contracts and paid for those against presentation by the sellers of warehouse receipts issued by the warehouses.

The warehouses were however acting fraudulently in issuing multiple warehouse receipts for the same goods to different buyers. There was insufficient grain to make physical deliveries against those receipts.

The insured paid for the grain but never received it. It then claimed from its insurers under a contract of marine cargo open cover insurance.

The insured claimed on the basis that it was entitled to recover on what it described as ‘the straightforward basis that goods for which it paid, and which had been physically present in the Warehouses, have been lost to it’. That loss was either because the goods had been misappropriated, and the claim fell within the Misappropriation Clause, or because there was a loss of goods by reason of the insured’s acceptance of fraudulent warehouse receipts, and thus covered under the Fraudulent Documents Clause.

The insurers argued that there was no loss of physical property and alternatively that the insured could not prove any insurable interest in the property.

The court held that on the facts the insured had proved that goods corresponding in quantity and description to the cargos in which the insured had an insurable interest, were physically present in the relevant warehouses at the time the receipts were issued.

The insured had an insurable interest because it had paid for the unascertained goods and had an immediate right to possession of the goods against the warehouses coupled with an economic interest in the goods.  The judgment contains a useful review of English law and principles on insurable interest.

The court held that the loss was caused by “misappropriation” within the meaning of the policy.  The misappropriation clause read:

“This insurance contract covers all physical damage and/or losses, directly caused to the insured goods by misappropriation”.

It then contained a detailed definition of misappropriation.

While there was a physical loss of goods the relevant fraudulent documents clause did not apply because the loss was not caused by the insured’s acceptance of fraudulent warehouse receipts.