The Bank had loaned money to the owners of the vessel “TERAS LYZA” (the Vessel). To secure the loan, the Bank registered a mortgage over the vessel and insured their interest in the vessel with marine insurance underwriters (the Insurer).
The marine insurance policy covered the hull and machinery (Section A – USD56 million) with separate cover for increased value and/or excess liabilities (Section B – USD14 million) which covered the full value and additional costs resulting from a total loss.
The vessel was lost whilst being towed, and a host of marine insurance issues arose – including whether the Bank had any insurable interest in the increased value of the vessel. Please see Malcolm Hartwell’s article on the judgement here.
Under English law, an insurable interest must be more than a mere expectation or hope of loss avoidance; it must be recognised in law as a tangible, legal or equitable relationship to the insured property. In mortgage scenarios particularly, the mortgagee’s interest in a vessel or other maritime property is ordinarily sufficient to satisfy this requirement. The Singapore case appropriately illustrates that a mortgagee can only recover so long as the insured coverage aligns with the mortgagee’s demonstrable exposure to loss.
In marine insurance, this concept arises most clearly from statutes such as the Marine Insurance Act 1906 where section 4 voids gaming or wagering contracts. In contrast, South African law on insurable interest, while historically influenced by the English approach, is not governed by statute.
South African law places a noticeably broader emphasis on the factual and commercial relationship between the insured and the property as long as the parties are not gambling on the outcome.
In the Singapore case, the court applied English law and on the basis that both parties accepted the opinion of the two English law experts that the increased value clause was void held that Section B of the Policy was void as a gaming or wagering contract.
The court noted that section 4 of the 1906 Act renders contracts of marine insurance that are effectively gaming or wagering contracts void. The “increased value” portion under Section B did not align with a demonstrable insurable interest. It effectively operated as a wager that the insured might receive an additional payout beyond covering the proven loss. In essence, Section B’s structure and wording made it function like a bet on the vessel’s fortunes rather than insuring a loss that is actually suffered.
Both English and South African law agree that contracts purely for betting, by which an insured has no genuine material or proprietary stake, are unenforceable. Equally, both view the concept of insurable interest as a fundamental principle distinguishing valid indemnity insurance from a speculative transaction. In both jurisdictions, the insured seeking to recover for a total or partial loss will need to establish some actual or legally recognised detriment suffered by the happening of the insured peril.
While English law, especially after the rigorous statutory framework of the Act, is specific in how it defines and bounds insurable interest, South African law focuses more flexibly on whether the insured gains any factual benefit from preservation of the property or any factual loss from its destruction.
South African courts have sometimes indicated that, in practice, a purely economic stake can outstretch formal ownership or physical relations, provided the stake is sufficiently direct and not a mere expectation. Though the two jurisdictions can end up in much the same place, invalidating policies with no underlying fundamental interest, the narrower statutory definition under English law (highlighted in the Singapore decision) may, in some cases, lead to stronger technical arguments about partial voiding of policies or disclaimers for want of formal interest.
Another subtle but important difference lies in how the courts treat so-called “contingent interests.” In English cases, an assured who has no interest at inception but who intends to acquire an interest later typically fails the legal definition of insurable interest absent special statutory exceptions. In South African insurance practice, a court may be more inclined to review the commercial realities of the transaction—whether the insured genuinely anticipates acquiring an interest, and whether that anticipation can be documented in an agreement and recognised legally. Nonetheless, if the “acquisition” interest is too remote or speculative, South African law would likewise deem it unenforceable as a wagering contract.
Although the two jurisdictions share a common heritage, the statutory mechanism in England is more rigid. A contract found partially beyond the scope of a party’s real economic interest is held void under section 4 of the Act. In South Africa, courts uphold the principle that an insured must be genuinely vulnerable to the insured peril but do so with a more open-ended inquiry premised primarily on a fact-driven assessment of the insured’s actual risk of loss or damage.
As many South African marine insurance policies include insurable interest provisions that are subject to English law, this case highlights the differences between the two approaches. In our view the broader South African approach is to be preferred.