Report No. 70
44.11. Fire before completion.-
In the case of a fire policy, where the fire takes place before 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 existence 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 accent as diminishing the amount recoverable1.
1. Collingridge v. Royal Exchange Assurance Corporation, (supra) (fire insurance).
44.12. Effect of completion.-
Where, however, the sale is afterwards completed, and the price paid, the assured has, in the events that have happened, suffered no loss1. 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.2
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.3 Although the conveyance divests him of his legal ownership, he nevertheless retains, by virtue of his lien, an insurable interest sufficient to keep the policy alive, 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 lien before he has received his price, his insurable interest under the policy is extinguished, inasmuch as his relationship to the subject-matter of insurance has ceased to exist. He has no longer a right to look at the subject-matter as securing payment of the price: his sole right is a personal right as an ordinary creditor against the purchaser himself4.
1. Ivamy General Principles of Insurance Law, (1965), p. 257.
2. CasteRain v. Preston, (supra) (fire insurance).
3. Cf. Sale of Goods Act, 1893, section 41.
4. Cf. Sale of Goods Act, 1893, section 43.
44.13. Payment of price.-
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 ownership1. The policy therefore remains in force, notwithstanding such payment2. But, in the event of a loss before completion, the assured not being indemnified 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, 1925.
Section 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 assured3.
1. Ivamy General Principles of Insurance Law, (1966), p. 256.
2. Castellain v. Preston, (supra) (fire insurance).
3. Martineau v. Kitching, (1872) 7 QR 436, per Blackburn, J., p. 458.
44.14. The contract under which the assignment of the subject-matter takes place may contain a provision that the assured is to keep alive an existing policy for the benefit of the purchaser.1 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 policy2 no difficulty can arise.
1. Doed Pearson v. Ries, (1832) 8 Bing 178;
Poole v. Adams, (1864) 33 LJ Ch 639;
North British and Mercantile Insurance Co. v. Moffat, 1871 LR 7 CP 25; Martineau v. Kitching, 1872 IR 7 QB 436.
2. Garden v. Ingram, (1852) 23 LJ Ch 478, where the insurers were willing to pay the purchaser;
Darrell v. Tibbitts, (1880) 5 QBD 560 (CA) where it was purchaser who had received payment under the policy.
44.15. Recommendation to remove difficulties arising from the present section.-
It appears to us that the section, taken literally, is of very limited application and in any case its full implications are not set out. Moreover, there is the problem arising from the rule of insurance law-that after title- passes, the vendor has no insurable interest. Lastly, the vendor is not, at present, compellable to sue the insurer. All these difficulties should be removed by a suitable amendment which we recommend.
The true position can be stated as follows, with reference to the various stages at which the loss or damage occurs-
(a) Where the loss or damage by fire occurs before the contract, the transferee is not concerned with the matter, since at that time he had no interest in the property. Moreover, when he offered the price or ether consideration, he would, at least in the vast majority of cases, have fixed it on the basis of the property as already damaged.
(b) Where the loss or damage by fire occurs after the contract but before the transfer, the transferee, though he has not yet acquired an interest in the property in the legal sense, is concerned in so far as the value of the property diminishes after the price or other consideration is fixed. The price or other consideration may have been fixed on the basis of the state of the property as existing previously, that is to say, in the "undamaged" condition.
If so, the benefit of the policy-i.e., the amount received by the transferor under the policy on account of that loss or damage-should go to the transferee. All that can be said in favour of the transferor is that the transferor should be entitled to the proportionate premium attributable to the period in question. This situation is not covered by section 49 as it stands at present. It should be added in the Act to complete the statement of the law.
(c) Where the loss or damage by fire occurs after the transfer, the transferee is definitely interested in the property and should be reimbursed as already provided by section 49. In case of a sale, the Act in section 55(5)(c) expressly provides that the purchaser has to bear the risk. That merely means that he cannot rescind the sale on the ground of such loss or damage. It does not affect the justice of the provision in section 49.
(d) In the case mentioned in (c) above, there is need for adding a further provision that the transferee may call upon the transferor to take effective steps for realising the amount and if he fails to do so, he may himself take such steps, making the transferor a party in any legal proceedings that may have to be instituted. Also it should be provided that the insurer shall not be entitled to object on ground of transfer. Also the seller may retain the right to enforce the unpaid vendor's lien.
In the result, amendments as per propositions (b) and (d) above should be made, by revising section 49.
44.17. In this context, we may make it clear that the amendments which are being recommended would not conflict with any specific provisions of the Act regarding the passing of risk or with any provisions of the general law of insurance. What is being suggested is only an adjustment of the mutual rights of the transferor and transferee, in relation to the benefit of an insurance policy against fire. In particular, in regard to proposition (b) above, it may be made clear that such a clarification or amendment will advance the cause of justice and will, in general, be equitable. Of course, if there is a contract to the contrary, that will prevail.
It has not been possible to ascertain the business practice in this regard, but we believe that the section as proposed to be amended does not introduce any such rigidity as would interfere with the practice of businessmen or owners of property.
44.18. Movable property.-
Incidentally, it might also be stated that the action is not concerned with movable property, and if a question of a similar nature arises on the transfer of a movable property-say, a motor car or jewellery or other costly articles-the matter would have to be determined on general principles of law; but a comprehensive and self-contained section-which section 49 would become after the recommended amendment-might well serve as a model as illustrating the principle that can be applied on the grounds of justice, equity and good conscience. We have devoted some length to a discussion of this topic in view of its practical importance and in view of the fact that to the layman the general principles of insurance law and their application in this particular field are matters of obscurity.