Report No. 21
General.-This deals with the quantum of interest, in certain cases.
Mortgagors Query.-Sub-section (1) which allows insurance both by the mortgagors and by the mortgagee, it has been said, is theoretically open to objection. The interests of the two are distinct and, therefore, contribution on the basis of double insurance (section 32 of the English Act) may not apply. Both can recover simultaneously. Further, the mortgagee (if the vessel is lost) can still realise his debt as an unsecured debt.
That is, however, only in theory, because in practice it is the mortgagor who effects insurance both on his own account and on behalf of the mortgagee, and then charges the policy in favour of the mortgagee.
Subrogation (Indemnity by third party).-Where both the interests are insured by separate policies, subrogation would apply (section 79 of the English Act). Presumably, the mortgagor also would have the benefit of subrogation. As regards sub-section (3), an illustration of a case where it could apply would be where the ship-owner has accepted a certain liability in respect of the cargo, but the owner of the cargo can nevertheless effect insurance against the very loss for which he can hold the ship-owner liable. [Of course, in such cases, the principle of subrogation (section 79 of the English Act) will apply]. What the section stresses is, that the fact that the owner of the cargo has a right of action against a third party (shipowner) does not prevent the cargo-owner from insuring the cargo.