In considering the nature of the contract of insurance it is necessary to distinguish between the subject-mater of the contract of insurance and the subject-matter of insurance. In all contracts of insurance the subject-matter must be adequately described.
A. THE SUBJECT-MATTER OF THE CONTRACT OF INSURANCE
The protection given by a contract of insurance is not a protection against accident in that the contract can prevent an accident from happening. It merely secures for the assured, when the accident happens, the payment of a sum of money. The subject-matter of the contract of insurance is, therefore, money, and it must be distinguished from the subject-matter of insurance, which exists independently of the contract.
Thus, in the words of Brett LJ:
‘Now in my judgment the subject-matter of the contract of insurance is money, and money only. The subject-matter of insurance is a different thing from the subject-matter of the contract of insurance…. The only result in the policy, if an accident which is within the insurance happens, is a payment of money. It is true that under certain circumstances in a fire policy there may be an option to spend the money in rebuilding the premises, but that does not alert the fact that the only liability of the insurance company is to pay money.
Similarly, in another case Bowen LJ, said:
‘What is it that is insured in a fire policy? Not the bricks and the materials used in building the house, but the interest of the assured in the subject-matter of insurance.’
B. THE SUBJECT-MATTER OF INSURANCE
A contract of insurance necessarily contemplates the existence of something to which an accident may happen, and anything, to which an accident may happen, may, therefore, be the subject-matter of insurance. Strictly speaking, an accident can only happen to a physical object. There are, however, certain kinds of insurance intended to protect the assured in cases where he requires protection not against to physical objects, but against the consequences to himself for such accidents. In these kinds of insurance, the interest of the assured which will be adversely affected by the happening of the accident insured, is to be regarded as the subject-matter of insurance.
The subject-matter of insurance may be one or other of the following:
1. A physical object.
2. A chose-in-action.
3. A liability imposed on the assured.
1. A physical object
Hus, the subject-matter of insurance in personal accident insurance is the body of the assured. In burglary insurance it is the property exposed to the peril. Similarly, in fire insurance the building insured is the subject-matter of insurance.
The insurance of certain kinds of property, however, may be void on the ground of public policy, eg an insurance on enemy property.
2. A chose-in-action
In solvency insurance, in which the assured insures against the non-payment of a debt, the debt or chose-in-action, against the loss of which the assured seeks to protect himself, appears to be the subject-matter of insurance. The subject-matter of insurance cannot be the property of the debtor, since, in the absence of a charge, a creditor, as such, has no insurable interest in the property of his debtor and therefore cannot insure it.
The same principle applies to licence insurance and patent insurance , in which the assured insures against the loss of a licence or the invalidity of a patent. In these cases, the subject-matter of insurance is the monopoly attaches.
3. A liability imposed on the assured
In liability insurance, in which the assured insures against liability to third parties arising otherwise than from cortract, the liability insured against is the real subject-matter of insurance. The assured has no direct interest in the safty of third persons or in the preservation of their property from harm. The loss against which he seeks protection is not the injury or damage caused by the accident. It is the consequence of the fact that he happens to be responsible for the accident in the circumstances in which it takes place.
C. THE DESCRIPTION OF THE SUBJECT-MATTER
A description of the subject-matter of insurance is necessary for three purpose:
1. To identify the subject-matter
2. To show the nature of the risk.
3. To define the risk.
1. To identify the subject-matter
A description of the subject-matter of insurance necessarily forms part of every policy, and this description must be framed in terms sufficiently adequate to enable the subject-matter to be identified with precision.
If the subject-matter does not answer the description at all, an action on the policy would clearly fail, since the assured will be unable to show that the subject-matter in respect of which he has suffered loss is the subject-matter which is, in fact, insured by the policy. Thus Blackburn J, said In a case concerning marine insurance:
‘A description of the subject-matter of the insurance is required both from the nature of the contract and from the universal practice of insurer…. If no property which answers the description in the policy be at risk, the policy, will not attach, though the assured may have other property at risk of equal or greater value. The reason being that the assurers have not entered into a contract to indemnity the assured from any loss on that property.’
If, on the other hand, the subject-matter answers the description, but the description is ambiguous, being equally capable of being applied to a different subject-matter, the policy may be void for uncertainty.
The kinds of description
a. specific descriptions.
b. general descriptions.
(a) Specific description
The description of the subject-matter of insurance may be expressed in terms so specific as to be capable of being applied only to one particular object. In this case, there is one possible subject-matter to which the accident insured against can happen, I e the actual object described in the policy, and the assured must, therefore before he can recover, prove the identity of the object to which the accident has happened with the object described in the policy.
For this purpose he must show that the object to which the accident has happened answers the description in the policy. An object which does not answer the description in not within the terms of the policy. It is immaterial tht it is, in fact, the object which the assured intended to insure. Thus an insurance company has been held not liable where the pedigree of the horse insured was wrongly described, where a policy insuring a warehouse failed to include the machinery situated in it although the assured intended to insure it, and also where a factory at New Southgate was described as being at Newington Green. The fact that the object which did answer the description has been replaced by the object to which the accident has happened is also immaterial.
(b) General description
The description of the subject-matter may be framed in general terms capable of being applied to any object belonging to a particular class. In this case the subject-matter of insurance is the class designated by the description.
The question of identity, therefore only affects the class and,, so far as the object to which the accident has happened is concerned, it is sufficient to show that it belongs to a class which answers the description. Hence it is not necessary to establish a specific intention to insure the particular object, since the policy intended to apply to any object belonging to the class. If he terms of the policy permit, the assured may recover, although the object to which the accident happens was not in his possession or even in existence at the date of the policy.
Thus where ‘stock-in-trade’ is insured against burglary, the assured must prove that the articles stolen formed part of his stock-in-trade. He need not, however, show that they formed part of his stock-in-trade at the time of insuring. The insurance on the articles which constitute the stock-in-trade at any particular date, but is an insurance on a fluctuating class. The substitution, therefore, of other articles for those disposed of in the ordinary course of dealing with stock-in-trade or the acquisition of additional articles does not affect the identity of the class.
On the other hand, objects which do not belong to the class described are not within the policy, since they do not fall within the description of the subject-matter. Thus, ‘stock-in-trade’ does not include a stock of linen drapery, if the assured is not a linen draper. Similarly, ‘fixtures’ do not include furniture, nor does the term ‘goods’ include wearing apparel or personal effects.
I DESCRIPTION OF THE LOCALITY OF THE SUBJECT-MATTER
The description of the subject-matter, whether expressed in general or specific terms, may include a statement as to locality. Where the insurance is connected with a building, such a statement is a necessary part of the description for the purpose of identification. The building must be in the described locality if an accident happening there is to be covered.
In other cases a statement as to locality is not essential. But, it is included in the description, the accident must take place in the described locality.
Thus, if a personal accident insurance is limited to the United Kingdom, the accident must take place in the United Kingdom. Further, if goods are described as being on certain premises, they are not covered elsewhere. Similarly, a policy against liability for accidents to third persons caused by the negligence of the assured’s workmen whilst at work at a particular place applies to accidents happening at that place only. In accordance with the same principle, goods insured in transit ‘per land conveyance until on board’ are not covered whilst in barges. An insurance on securities in transit ‘between houses or places’ contemplates a transit between different houses or places, and does not cover a mere removal from one room to another in the same building.
II DESCRIPTION OF OTHER CIRCUMSTANCES
The description of the subject-matter may further include statements relating to other circumstances, eg the business carried on by the assured, or the use which is made of the insured property. These statements may be necessary for the purpose of identification; more usually they serve to define the risk.
2. To show the nature of the risk
The insurers are necessarily guided in deciding whether to accept the risk by the description of the subject-matter given by the assured. Accuracy of description is, therefore, required from the assured in discharge of the duty of good faith. An inaccuracy which does not prevent the subject-matter of insurance from being indentified may, nevertheless, preclude the assured from recovering, inasmuch as he has failed to discharge this duty.
3. To define the risk
The subject-matter of insurance, whatever its nature, is liable to undergo alteration during the currency of the policy, and , in case of its alteration, the question may arise as to whether the insurers remain responsible for its safety as altered. Their responsibility clearly ceases where the alteration destroys the identity of the subject-matter since it no longer answers the description in the policy.
More usually, no question of identity arises, but the effect of the alteration renders the subject-matter more susceptible to the peril insured against. An alteration of this kind may be prohibited, either by the general law or by the express terms of the policy. But, unless prohibited, the alteration may take place without affecting the validity of the policy or of the claim. For the purpose of determining whether any particular alteration is a prohibited alteration or not, reference must be made to the description in the policy, which defines the subject-matter as at the inception of the insurance and furnishes the standard by which any subsequent alteration is to be measured.