Insurable interest, legal, property insurance, Russian Law, Armenian law, English law

The concept of insurable interest under the English, Armenian and Russian legal frameworks

Insurable interest, legal, property insurance, Russian Law, Armenian law, English law Author: Aramayis Galichyan

In our recent article we examined the nature of insurable interest in the English legal system, one of the conclusions being that an insurable interest is not necessarily a proprietary right in the subject matter insured. In this article we will consider the nature of insurable interest under the Armenian and Russian legal systems which have many similarities.

Armenian law

In accordance with the Article 9831(3) of the Civil Code of the Republic of Armenia, as a beneficiary of insurance contracts should be considered the person who has the right to receive insurance indemnity in case of occurrence of an insured event envisaged by the insurance contract. At the same time, the Article 9831(4) defines object of insurance as property and personal interests which are insurable. By virtue of the Article 984 (1), para 1 insurance of unlawful interests is prohibited. The Article 984 (1), para 2 prohibits insurance for damages incurred as a result of participation in games, lotteries and wagers. Those insurance contracts which are not in conformity with these restrictions are made null and void.

It has to be noted that in accordance with the Armenian legislation, under a property insurance contract the property can be insured for the benefit of the person (the policyholder or beneficiary), who has an interest of preservation of that property based on law, other legal acts or a contract. In the absence of policyholder’s or beneficiary’s interest of preservation of the insured property, the concluded insurance contract is void (Civil Code of the Republic of Armenia, Article 996 (6)). The above regulations do not limit the application of insurable interest to ownership rights. In practice, mortgagees, lessees, bailees, contractors and sub-contractors are named as beneficiaries under property insurance contracts.

However, non-ownership rights require a more detailed consideration with a focus on the following aspects of the question:

  • Will the party named as the beneficiary of the insurance indemnity suffer financial loss resulting from the damage or loss of the property insured?
  • The beneficiary shall be indemnified, but not gain profit from insurance – will the indemnity lead to the beneficiary gaining profit, leaving the owner of the property with unrecovered losses?
  • The legal relationships between the subject matter of insurance, the insured and the beneficiary.

Russian law

In accordance with the Article 930 of the Civil Code of the Russian Federation, property may be insured in favour of the person (policyholder or beneficiary) who has an interest in the preservation of the property, based on law, other legal acts or a contract, and an insurance contract concluded without such interest is void.

The definition of insurable interest under the Russian and Armenian Civil Codes has the same construction.

The owner, as an entity having a more complete right in the property owned by him, always has a legal interest in the preservation of the property.

There is a point of view amongst some legal practitioners that only the entity bearing the risk of loss of or damage to the property, holds an interest in the preservation of the property under a property insurance contract, and not the entity liable for the loss of or damage to the property. However, this viewpoint has been rejected by the Resolution of Presidium of Supreme Arbitration Court of the Russian Federation of 21.04.98 N 1540/98, whereby the element of determining whether the lessee was liable for the loss of the property was considered as one of the deciding factors for deciding whether the insured held insurable interest in the property. This decision has been largely criticised by some legal practitioners, although the definition of insurable interest as set out by the Civil Code of the Republic of Armenia and the Russian Federation, doesn’t limit the insurable interest only to strictly proprietary rights.

Conclusion

Regardless of the various interpretations of the concept of insurable interest in property insurance, neither in the English system nor in the Armenian or Russian legal systems there are legal barriers for extending the application of insurable to rights which are not strictly proprietary.

The analysis of the Armenian and Russian legislation about insurable interest suggests that the elements of insurable interest, namely being recognised in law and not being illegal are similarly recognised as an integral part of insurable interest. The Armenian and Russian legal systems describe insurable interest as an interest in the preservation of the subject matter of insurance, recognised by legal acts, law or a contract, which is similar in connotation to the English law concept of insurable interest. In the Armenian and Russian practice, mortgagees are usually nominated as beneficiaries of insurance contracts in the amount of the full value of the credit owed by the owner of the property pledged to the Bank.

We may therefore conclude that lessees, contractors and sub-contractors may also be considered as parties possessing insurable interest under property insurance contracts, so far as they are liable for loss of or damage to such property, or have certain rights in the property.

Another test for determining whether a party holds insurable interest in respect of its liability for the loss of or damage to the property insured, would be checking whether the insured is responsible for reinstating the material damage, and provided that the insured has in fact reinstated the loss, consider the latter being entitled to receive indemnity.

Non-ownership rights require a more detailed consideration with a focus on establishing whether or not the party named as the beneficiary of the insurance indemnity has suffered a financial loss resulting from the damage or loss of the property insured, and whether the claimed indemnity will lead to compensation, or gaining profit from insurance which is prohibited by law.

We have already outlined in “Insurable interest - cargo and property insurance”, that only if the insured is the party who has suffered a financial loss resulting from the damage or loss of the property insured, he may be entitled to receive and keep the indemnity.