The assured does not necessarily retain his interest in the subject-matter of insurance thoughout the currency of the policy.
Usually the policy contains an express clause setting out the result of any assignment by the assured. Further, the subject-matter may have been assigned by operation of law in the case of his death or bankruptcy. It may have been sold or given away. A trust may have been created in respect of it, or it may have been mortgaged. If it were originally owned by a partnership, a change in the constitution of the firm may have come about, or the firm may have been turned into a limited company. It, therefore, becomes necessary to consider the effect of such types of assignment on the validity of
The subject-matter of insurance in the case of personal accident insurance and life insurance is from its nature unassignable. In all other classes of insurance the subject-matter is capable of being assigned.
An assignment of the subject-matter of insurance by virtue of an agreement between the assured and the assignee may affect the validity of the policy by reason of the rule that the assured must at the date of the loss posses an insurable interest.
If the insurance relates to specific property, whether directly, as in the case of an insurance on the property itself, or indirectly, as in the case of an insurance against the liability arising out of its ownership, it is clear that the property insured may be assigned, and that the liability insured against necessarily passes with the property. If the insurance does not relate to specific property, but to a class of property, the assignment of a particular object falling within the class affects neither the ownership of the class nor the liability arising therefrom. But the class may be assigned as a whole, as, for instance, on the sale of a business, and any subsequent liability arising from its ownership necessarlily developes on its new owner.
A. EXPRESS CONDITIONS AGAINST ASSIGNMENT
The policy usually contains an express condition to the effect that the policy is to cease to be in force if the subject-matter passes from the assured otherwise than by will or by operation of law. The position under a condition to this effect does not materially differ from what would be the position in its absence. Such a condition usually applies only to an absolute transfer.
Sometimes the condition is framed more strictly and the policy may be avoided though the assignment is by way of mortgage or charge or by way of leasing or sub-letting, unless the consent of the insurers thereto is obtained.
On the other hand, the condition may permit absolute assignment in certain cases, as, for instance, on the retirement of a partner, or on the sale of a business.
There is no breach of a condition against the assignment of the subject-matter until the assignment is complete.
B. ASSIGNMENT BY OPERATION OF LAW
Where the assignment takes place by operation of law, as on the death or bankruptcy of the assured, the insurable interest of the assured in the subject-matter of insurance is transferred to the personal representatives or trustee in bankruptcy, and the validity of the policy is not affected.
C. SALE OR GIFT OF SUBJECT-MATTER
Where the assignment is by the voluntary act of the assured, e g in the case of a sale or a gift, the validity of the policy depends on whether the assured, after the assignment, retains his insurable interest in the subject-matter.
An absolute conveyance of the subject-matter from the assured to a purchaser, accompanied by the receipt of the agreed price, divests the assured of his interest in the subject-matter, He cannot, therefore, in the event of its subsequent destruction, e g by fire, recover on any policy by which it may have been insured, since he has suffered no loss, and there is consequently nothing to which the right of indeminity can attach.
The validity of a policy is not affected by the mere fact that the assured has entered into a contract to convey the subject-matter on insurance, even though, as between the assured and the purchaser, the risk has passed to the purchasers.
The existence of the contract does not, in itself, divest the assured of his insurable interest, which continues by reason of his legal ownership of the subject-matter; and he acquires a further interest arising out of the possibility of the purchaser refusing to carry out the contract, and thereby throwing the loss on him.
In the case of a fire policy, where the fire takes place the sale is completed by the execution of the conveyance and the receipt of the price, the assured is entitled to recover to the full extent of his loss within the limits of the policy. The exsistance of the contract and even the certainty that the assured will finally suffer no loss at all because of the purchaser’s intention to complete, and his undoubted solvency, cannot be taken into account as diminishing the amount recoverable.
Where, however, the sale is afterwards completed, and the price paid, the assured has, in the events that have happened, suffered no loss. He cannot, therefore, either enforce the policy, or, if he has received the proceeds of the policy, retain both the proceeds and the price for his own benefit.
A conveyance of the subject-matter, unaccompanied by the receipt of the price, does not apparently affect the validity of the policy, if the fire takes place before the assured has parted with his lien as unpaid vendor. Although the conveyance divests him of his legal ownership, he nevertheless retains, by virtueof his lein, an insurable interest sufficient to keep the policy avive, and it is immaterial that it is reduced from a legal interest to a mere equitable one. He, therefore, is entitled, as in the previous case, to enforce his policy, so long as such interest remains. If, however, he parts with his lein before he has received his price, his insurable interest under the policy is extinguished, in as much as his relationship to the subject-matter of insurance has ceased to exist. he has no longer a right to look to the subject-matter as securing payment of the price; his sole right is a personal right as an ordinary creditor against the purchaser himself.
If the price has been paid, but the conveyance of the subject-matter has not been completed, the assured retains an insurable interest by virtue of his legal ownership. The policy therefore remains in force, notwithstanding such payment. But in the event of a loss before completion, the assured, not being damnified by the loss, will not be entitled to enforce it against the insurers for his own benefit, although, if the conditions of the Law of Property Act 1025, s 47 are fulfilled, he may enforce it for the benefit of the purchaser. Where, however, the assured has contracted with the purchaser to be responsible for the safety of the subject-matter, the position will be different; and, unless the language of the policy is prohibitive, the value of the subject-matter will be recoverable by the assured.
The contract under which the assignment of the subject-matter takes place may contain a provision that the assured is to keep alive existing policy for the benefit of the purchaser. Where, as is usually the case, the consent of the insurers is obtained to what is to all intents and purposes an assignment of the policy, no difficulty can arise.
The effect of the provision, in the absence of such consent, does not appear to have been discussed, but it would seem that there must be no condition in the policy precluding the assured from contracting with a purchaser in the terms of the provision. So long as the assured retains some interest in the subject-matter, such a provision may be valid, not only as between the assured and the purchaser, but also against the insurers. Although the contract may effect a change in the nature of his interest, it does not put an end to it. Nor is its value necessarily diminished, since the contract may amount to an undertaking by the assured to be responsible in the event of any loss. In this case, at any rate, there seems to be no reason why he should not be entitled to enforce the policy in respect of such interest, provided that he is not prohibited from so doing by the terms of the policy.
Where there is no such undertaking, he may perhaps be entitled to enforce his policy for the benefit of the purchaser on the ground that, at the time of effecting it, he intended to cover the whole interest in the subject-matter. It is more probable, however, that he cannot effectively do so, since the handing over of the sum received under the policy would be a mere voluntary payment on his part, and would not deprive the insurers of their right to have the purchase money taken into account.
If before loss the assured parts with his interest in the subject-matter, the policy comes to an end, by reason of the cesser of the interest on which it was based. Where, by his agreement with the purchaser, the assured does not undertake to be liable in the event of a loss, his right, if any, to enforce the policy does not depend on the interest which he had at the date of effecting the policy, and the rules relating to continuity of interest in the assured apply. The policy, therefore, would not be revived, and the assured would not be able to enforce the policy in respect of any loss happening after the cesser of interest.
D. CREATION OF A TRUST OR MORTGAGE
Where the assignment of the subject-matter, though in its terms purporting to be absolute, is only a nominal assignment without consideration, and is not intended to divest the assured of his interest, the validity of the policy is not affected. The assured remains fully interested in the subject-matter, although his interest is now an equitable one only. It is thus to be distinguished from an assignment which, although made without consideration, is intended to operate by way of gift, and which, therefore wholly divests the assured of his interest in the subject-matter.
Similarly, the creation of a mortgage or charge on the subject-matter by the assured does not in the absence of an express condition to that effect affect the validity of his policy, because he is not entirely divested of his interest, since he retains an equity of redemption, and generally also the possession of the subject-matter.
E. CHANGE IN A PARTNERSHIP
The effect of a change in the constitution of an assured firm is open to some doubt. In the case of the retirement of a partner it may be said that, as the contract contained in the policy is a joint contract, the assignment of his interest by the retiring partner to the remaining partners is a breach of the condition against assignment of the subject-matter.
On the other hand, the interest of the remaining partners continues, and the retiring partner remains liable for the debts of the partnership contracted prior to his retirement.
This second view is considered to be more probably correct, particularly as there is no question of the introduction of any element which the insurers might have been unwilling to accept on risk.
The admission of a new partner will,however, have a different effect, and it is considered that the policy will be avoided. The new partner may be a person whom the insurers will not wish to insure or whom they are only prepared to insure on different terms. Similarly, the taking of a partner by a person, who at the date of the policy was carrying on business alone, is a breach of the condition.
If, however, the subject-matter of the insurance is the property of one partner, although used by the firm, any policy effected by that partner will not be avoided by a subsequent change in the firm. It is, therefore, advisable in either case to notify the change in the firm to the insurers, and to obtain from them their consent to the continuance of the insurance. It is not, however, the change in the firm, but the assignment of the property insured to the new firm, that affects the policy. If, therefore, a loss takes place before the assignment is completed, the old firm may enforce it.
When a partnership is changed into a limited company to which the subject-matter of insurance is assigned, any existing policy of insurance is avoided by reason of the transfer.