Report No. 21

Clause 9

(i) General.-This section makes wagering agreements void for the purposes of civil law. Compare section 30 of the Indian Contract Act. See also the recommendation made in the report on the Contract Act1 to extend section 30 to collateral agreements. In England, the Marine Insurance (Gambling Policies) Act, 1909 imposes criminal liabilities in certain cases, with the result that even collateral transactions would be avoided and the broker effecting such policies cannot claim commission.

For an example of a wager, see the case of Gedge v. Royal Exchange Assurance, (1900) 2 QB 214.2

(ii) "Policy proof of interest".-The result of this section is that what is called the "policy of interest" clause or "full interest admitted" clause cannot create any rights.3

(iii) For a definition of "insurable interest" see section 5 of the English Act.

(iv) English Act of 1909.-The provisions of the Marine Insurance (Gambling Policies) Act, 1909 of England, relating to insurable interest are worded slightly differently. Section 1(1) (a) speaks of "bona fide interest direct or indirect, either in the safe arrival of the ship or in the safety or preservation of the subject-matter insured or a bona fide expectation of acquiring such interest."

(v) "No interest" policies.-Section 1(1) (b) of the 1909 Act provides that an employee of the ship owner effecting a contract of marine insurance in the terms "interest or no interest" or "without further proof of interest than the policy itself" or "without benefit of the salvage to the insurers" or similar terms is deemed to have entered into a gambling contract and is punishable. Similarly, section 1(5) of the 1909 Act raises a rebuttable presumption that contracts in such terms entered into by non-employees are deemed to be gambling contracts unless the contrary is proved.

(It appears that so far no prosecution has been instituted under this Act)

Departure from the English Act.-The word "gaming" has been omitted, as the practice in India is to speak of wagering agreements only.

[Section 4, Proviso, English Act].

Without benefit of salvage.-The proviso says that if there is no possibility of salvage, a policy may be effected without benefit of salvage. An example of such a contract would be an insurance on increased value of cargo. Where cargo is the subject of increase in value (because of rise in market values during the transit), the original policy no longer affords sufficient cover, and it becomes necessary to take out an increased value policy. Under such a policy, the insured amount will increase if the prices rise, that is to say, as soon as the further insurance to cover the increase in value is taken by the owner of the goods, the owner of the goods can recover under the increased value policy the same percentage of loss as he may recover under the original insurance.

The policy would be without benefit of salvage to the "increased value" underwriter; the increased value underwriters would not be allowed to participate in the salvage, and the original insurers, on payment of the amount undertaken by them, would be entitled to the whole salvage. See the under mentioned case4, where general average contributions recovered by the original insurer were held to be exclusively theirs. The topic is linked up with that of subrogation (see section 79 of the English Act). It there is a possibility of salvage, such policies would be wagering policies and void at law though honoured in practice.

Increased value policies or P.P.I (Policy proof of interest or F.I.A.).-These have been already discussed.5 It has been the practice for the insurer and the assured to bargain on the basis that the assured shall not be required to produce proof of his interest in the subject-matter beyond production of the policy. These are called P.P.I. (policy proof of interest). Similar are F.I.A. policies ("Full interest in the assured"). Underwriters are bound on such policies only in honour; in the eye of the law, they are wagers. It has been pointed out,6 that in section 4(2) (b) of the English Act, the word "deemed" raises a conclusive presumption. "Deemed" does not mean that the contract is prima facie deemed to be a gambling and wagering contract, or that the inference may be rebutted by showing that the insurer had, or expected to acquire, an insurable interest.

1. 13th Report of the Law Commission (Contract Act), para. 60.

2. (Arrival of ship at Yokohama was the subject-matter of the insurance, but assured had no interest in such arrival and hence could not recover).

3. See discussion below, under section 4, proviso, English Act.

4. Boag v. Standard Marine Insurance Co. Ltd., (1936) 2 KB 121 (127) affirmed in (1937) 2 KB 113: (1937) 1 AER 714 CA.

5. See above "without benefit of salvage".

6. Cheshire and Co. v. Vaughan Brothers, (1920) 3 KB 240 (254), Scrutton