Insurable Interest in Nigerian Insurance Law

A bank lends money to a trader against the security of the trader’s warehouse. The trader takes out the fire policy and the bank’s interest is noted on it. The warehouse burns down. Who can claim, and for how much? Banks, mortgagors, importers, shareholders and creditors have all asked that question in Nigerian courts, and the answers turn on one idea every insurance student must master: insurable interest.

This article explains what an insurable interest is, who has one, when it must exist and what happens when it is missing. It builds on Nature and Legal Meaning of Insurance in Nigeria and Formation of an Insurance Contract in Nigeria. The governing statute is the Nigerian Insurance Industry Reform Act 2025 (NIIRA), which replaced sections 56 to 59 of the Insurance Act 2003.

1. Why the law demands an interest

Without an interest, insurance is a bet. The English Life Assurance Act 1774 was passed because policies on lives and other events in which the policyholder had no stake had become a mischievous kind of gaming.¹ Section 1 made any such policy void, and section 3 limited recovery to the value of the interest.² The Act left insurances honestly made on ships and goods outside its reach, so those were governed by other rules.³

Nigerian statutes have since gone further. The Insurance Act 2003 covered lives, property and other events, and NIIRA keeps that width. Section 66(1) declares void any policy on a life, on property or on any other event where the person for whose benefit it is made has no insurable interest in the subject matter, or where it is made by way of gaming or wagering.⁴ The reasoning is that of Channell J in Prudential Insurance Co v IRC: what turns a wager into insurance is that the assured has an interest, so the uncertain event must be adverse to him.⁵

There is a further point that students often miss. Where a statute requires the interest, the missing interest makes the contract void and illegal. The insurer cannot waive the defect, and the court must refuse to enforce the policy even if nobody pleads the illegality, as in Gedge v Royal Exchange Assurance Corporation and Anctil v Manufacturers’ Life Insurance Co.⁶ Where the requirement comes only from the common law of indemnity, the contract is unenforceable but the insurer may choose to pay, as the insurers did in Thomas v National Farmers Union Mutual Insurance Society.⁷ Because NIIRA now states the rule in statutory language, the safer examination answer is that a policy lacking interest is void and the insurer cannot waive it.

2. What counts as an insurable interest

Strip away the vocabulary and the test is whether the insured will be in jeopardy if the subject matter is lost, damaged or destroyed. The old formulation, from Lucena v Crauford, is that a person is interested in something where advantage may arise or prejudice happen to him from the circumstances that may attend it.⁸ The loss must be real and financial, not moral or sentimental, and it must flow from a legal right or liability. A mere hope or expectation does not count.

NIIRA turns this into a statutory test. A person has an insurable interest in a life, property or event where he stands in a legal relationship to it in consequence of which he may benefit from its safety or be prejudiced by its loss. “Legal relationship” includes equitable interests, and also the relationship under customary or Islamic law by which one person takes responsibility for the maintenance and care of another.⁹ The second part is a distinctly Nigerian reform, and it matters for family insurance, as we will see.

Three Nigerian cases show the edges of the principle.

In Macaura v Northern Assurance Co, which Nigerian courts follow, a shareholder who also held the company’s debt insured the company’s timber in his own name. The House of Lords held that neither as shareholder nor as creditor did he have an insurable interest in the company’s property.¹⁰ In Re British and French Bank Ltd; Jia Enterprises Ltd v British Commonwealth Insurance Ltd, the Federal Supreme Court applied this reasoning to a bank that wanted to be joined in a claim on property offered to it as security, and refused.¹¹ In Royal Exchange Assurance (Nig) Plc v Anumnu, by contrast, the borrower who had mortgaged his house and insured it as the mortgage required was held entitled to sue, because the insurable interest of both bank and borrower had been insured and the contract was his.¹²

Here is the tension that student notes usually skip. In Law Union and Rock Insurance Ltd v Onuoha, the court said a person who would foreseeably suffer financial loss from an event has an insurable interest.¹³ That is a much wider test than Macaura, because a shareholder will certainly suffer foreseeable financial loss if the company’s timber burns, and yet Macaura says he has no interest. The two cannot be applied together without strain. NIIRA’s wording, which asks for a legal relationship to the subject matter and not merely a foreseeable loss, sides with the narrower view, so in a Macaura-type problem the statute should be applied first and Onuoha treated with caution.

The Lagos port gives the best examples of a flexible approach in practice. In British India General Insurance Co (Nig) Ltd v Thawadas, goods shipped to Lagos from Las Palmas never arrived, and the insurer argued that the claimant had no insurable interest. The Supreme Court held that the person who suffered the loss from non-delivery had an insurable interest.¹⁴ In Adefuye & Co v Royal Exchange Assurance Co, cargo of stockfish rotted in the open after Customs moved it out of a shed, and the insurance had been placed in a third party’s name. The court held that property in the cargo passed to the plaintiffs when it was shipped and appropriated to their order, so their interest existed from that moment.¹⁵ For marine cover, NIIRA codifies this generosity: a person is interested where he may benefit by the safe arrival of insurable property, be prejudiced by its loss, damage or detention, or incur liability in respect of it, a buyer keeps his interest even if he could reject the goods, and a mortgagee may insure for what is due to him.¹⁶

3. A property right, and a constitutional one

Insurable interest is the legal shape of what you stand to lose, so it is closely tied to property. Section 44 of the 1999 Constitution protects property against compulsory acquisition without compensation, and a policy payout to a widow or a creditor is ultimately a property claim.¹⁷ The requirement of interest, and the limit on recovery discussed below, therefore define whose property right the law is willing to protect through insurance, and no more. For life policies there is a further dimension. A policy that keeps dependants afloat after a breadwinner’s death serves the same ends as the constitutional right to life.¹⁸ NIIRA’s recognition of customary and Islamic maintenance relationships (section 66(3)(a)) widens that protection beyond the nuclear family.

4. When must the interest exist?

The timing rules depend on the type of insurance, and this is where examiners separate strong answers from weak ones.

Life insurance requires interest only when the policy is made. In Dalby v India and London Life Assurance Co, an insurer that had reinsured a creditor’s policy on a debtor’s life was held liable on the reinsurance even though the original policy had been cancelled, because interest need exist only when the policy is effected.¹⁹ The English Act and the Nigerian statutes speak of interest at the date of the policy, and Dalby is treated as authority for that reading.

Property insurance such as fire is a contract of indemnity, and the insured must prove interest at the time of loss. It is also prudent to have it at inception, as in Castellain v Preston, where the vendor of a house kept an insurable interest after contracting to sell it, because the sale might never complete.²⁰ Macaura states the general rule that the assured must plead and prove interest at the time of loss.²¹

Marine insurance is the exception that reverses the usual order. Under NIIRA, the assured must be interested at the time of loss, but need not be interested when the insurance is effected, and where the cover is “lost or not lost” he may recover even if he acquired his interest after the loss, unless he knew of the loss when taking the policy and the insurer did not.²² That answers a common Lagos situation, where the importer buys documents against cargo already at sea.

The rules can be varied by contract, and some insurance never needs interest at the time of loss, such as valued policies or insurance placed by an agent for a disclosed principal who later ratifies it, as in Prudential Staff Union v Hall.²³

5. Who has an insurable interest?

In life insurance, a person has an unlimited interest in his own life, and the law treats spouses as having an interest in each other’s lives without proof, as in Griffiths v Fleming.²⁴ A creditor has an interest in his debtor’s life up to the amount of the debt and interest at inception, but a debtor has none in his creditor’s life.²⁵ Otherwise the question is whether the person will suffer a real loss. The Nigerian addition is section 66(3)(a): someone who has assumed responsibility for another’s maintenance under customary or Islamic law has an insurable interest in that person’s life, which suits the way many Nigerian families actually work.²⁶

Employers get a special rule. Section 68 of NIIRA requires every employer to maintain a group life policy for each employee for at least three times the annual total emolument, with the employer named as trustee and the employee as life assured. If an employee dies with no cover, the employer must pay three times his emolument itself.²⁷ The beneficiary must still be named, in line with section 67, though a class of beneficiaries is acceptable if it can be identified.²⁸

In property insurance, the owner has an interest, and so does the holder of a limited interest in land, such as a right of occupancy under the Land Use Act, up to the value of his estate.²⁹ A mortgagor, a mortgagee, a trustee, an executor and a contractor all have interests to the extent of their stake. A bailee, such as a warehouse keeper, has a personal interest in goods in his care to the extent of his lien and his liability to the owner, as Maurice v Goldsbrough Mort & Co shows.³⁰ People have no insurable interest where they hold only a hope, such as a bare expectation of profit (compare University of Nigeria v Turner), or where they are an unsecured creditor or shareholder of a company, as in Macaura.³¹

6. How much can be recovered?

An insured cannot recover more than the value of his interest. NIIRA says a person with an insurable interest is not entitled to receive an amount greater than the value of that interest, and the balance goes into the estate of the insured or policyholder.³² This repeats section 3 of the 1774 Act.³³

A problem hides here. Dalby treats the interest as needing to exist only at inception, yet section 70 limits recovery to “the value of the interest”. Suppose a lender insures a borrower’s life for ₦20 million to cover a ₦20 million loan, and the borrower repays half before dying. Does the lender recover ₦20 million, the value of the interest at inception, or ₦10 million, the value at death? The statute does not say, and the cases that gave the old Act its meaning point toward inception, but a Nigerian court applying section 70 literally could reach the other answer. Policyholders and insurers should settle this in the policy wording.

7. Describing the interest in the policy

The insured does not generally have to tell the insurer what kind of interest he has, provided the subject matter is described clearly. In Tomlinson v Hepburn, a goods-in-transit policy taken out by carriers was construed to cover their interest in goods belonging to a customer, and in Maurice a policy on goods “held on commission” covered the broker’s interest.³⁴ Inglis v Stock confirms that an undivided interest in goods is an interest in goods.³⁵ NIIRA gives the same rule for marine policies: the subject matter must be described with reasonable certainty, but the nature and extent of the interest need not be specified.³⁶

There are limits. An extraordinary or collateral interest, such as profit lost when a shop burns, must be specifically insured, because a policy on the building does not cover it. And concealing the nature of your interest can itself amount to non-disclosure, as in Anderson v Commercial Union Assurance, where a tenant at will should have disclosed his weak tenure because it affected the insurer’s option to reinstate.³⁷ The wider rules on disclosure are in Non-Disclosure and Misrepresentation in Nigerian Insurance Contracts.

8. What if the interest changes?

If a person insures property in general terms and his interest later changes, the policy generally survives unless it forbids the change. In Castellain v Preston, the vendor remained entitled to insure despite the contract for sale, and in Collingridge v Royal Exchange Assurance Corporation, a compulsory purchase order did not stop the owner recovering the full value of a building burnt before conveyance.³⁸ For the rights of someone who takes over an insured’s position by assignment, see section 71 of NIIRA, which lets an assignee sue in the insured’s name but gives him no better title than the insured had.³⁹

9. Common student mistakes

• Saying the interest must always exist at inception and at loss. Life and marine rules differ, and fire insurance is governed by the time of loss.
• Treating a shareholder or unsecured creditor as having an interest in the company’s or debtor’s property. Macaura says no.
• Using Onuoha without noticing that it conflicts with Macaura and with section 66(2).
• Citing sections 56 to 59 of the Insurance Act 2003 as current law. Section 66 of NIIRA now applies, and section 74 says that this part of the Act does not apply to marine insurance, which has its own sections (118 to 122).⁴⁰
• Forgetting that a policy lacking interest is void and the insurer cannot waive the point.
• Assuming a family tie is enough, when the real test is the legal relationship and the prospect of loss.

10. Problem question approach

Identify the subject matter and the type of insurance. Ask what legal relationship the insured has with it and what he stands to lose. Check the timing rule that applies: inception for life, loss for indemnity, loss for marine. Test the interest against Macaura and section 66(2), and check that the beneficiary is named under section 67. Then ask whether the claim exceeds the value of the interest (section 70). End by stating the consequence: a void policy, a reduced recovery, or a valid claim.

11. Quick reference

Question	Answer	Authority
Statutory rule on interest?	Policy void without interest or if by wagering	NIIRA s 66(1)
Definition?	Legal relationship giving benefit by safety or prejudice by loss	NIIRA s 66(2) and (3)
Customary and Islamic relationships?	Included if one person maintains the other	NIIRA s 66(3)(a)
Timing in life insurance?	At inception only	Dalby v India and London Life
Timing in fire and indemnity policies?	At time of loss	Macaura v Northern Assurance
Timing in marine insurance?	At time of loss; not needed at inception	NIIRA s 120
Shareholder in company’s property?	No interest	Macaura
Bailee?	Interest to extent of lien and liability	Maurice v Goldsbrough Mort
Limit on recovery?	Value of the interest; balance to the estate	NIIRA s 70
Must the policy name beneficiaries?	Yes, or a clearly described class	NIIRA s 67
Marine wagering?	Void	NIIRA s 118

12. Key cases

• Prudential Insurance Co v IRC [1904] 2 KB 658: interest is what separates insurance from a wager.
• Lucena v Crauford (1806) 127 ER 630: advantage or prejudice from the circumstances attending a thing creates an interest.
• Macaura v Northern Assurance Co [1925] AC 619: a shareholder or creditor has no insurable interest in company property.
• Re British and French Bank Ltd; Jia Enterprises Ltd v British Commonwealth Insurance Ltd (1962) 1 All NLR 363: a bank that merely held property as security was not a party who could sue.
• Royal Exchange Assurance (Nig) Plc v Anumnu (2003) 6 NWLR (Pt 815) 52: the mortgagor who insured the mortgaged property could sue without the bank.
• Law Union and Rock Insurance Ltd v Onuoha (1998) 5 NWLR (Pt 555) 576: foreseeable financial loss indicates an insurable interest.
• British India General Insurance Co (Nig) Ltd v Thawadas (1978) 3 SC 143: the person who suffered non-delivery of cargo had an interest.
• Adefuye & Co v Royal Exchange Assurance Co (1962) LLR 43: interest in cargo arises once property passes on shipment.
• Dalby v India and London Life Assurance Co (1854) 15 CB 365: life insurance needs interest only at inception.
• Castellain v Preston (1883) 11 QBD 380: vendor kept an insurable interest after contracting to sell.

Footnotes

1. Life Assurance Act 1774, preamble.
2. Life Assurance Act 1774, ss 1 and 3.
3. Life Assurance Act 1774, s 4.
4. Nigerian Insurance Industry Reform Act 2025, s 66(1); Insurance Act, Cap I17, LFN 2004, ss 56 to 59.
5. Prudential Insurance Co v Inland Revenue Commissioners [1904] 2 KB 658, 663.
6. Gedge v Royal Exchange Assurance Corporation [1900] 2 QB 214; Anctil v Manufacturers’ Life Insurance Co [1899] AC 604.
7. Thomas v National Farmers Union Mutual Insurance Society Ltd [1961] 1 WLR 386.
8. Lucena v Crauford (1806) 127 ER 630, 642.
9. Nigerian Insurance Industry Reform Act 2025, s 66(2) and (3).
10. Macaura v Northern Assurance Co Ltd [1925] AC 619.
11. Re British and French Bank Ltd; Jia Enterprises Ltd v British Commonwealth Insurance Ltd (1962) 1 All NLR 363.
12. Royal Exchange Assurance (Nig) Plc v Anumnu (2003) 6 NWLR (Pt 815) 52.
13. Law Union and Rock Insurance Ltd v Onuoha (1998) 5 NWLR (Pt 555) 576.
14. British India General Insurance Co (Nig) Ltd v Thawadas (1978) 3 SC 143.
15. Adefuye & Co v Royal Exchange Assurance Co (1962) LLR 43.
16. Nigerian Insurance Industry Reform Act 2025, ss 119, 121 and 128.
17. Constitution of the Federal Republic of Nigeria 1999, ss 33(1) and 44(1).
18. Constitution of the Federal Republic of Nigeria 1999, ss 33(1) and 44(1).
19. Dalby v India and London Life Assurance Co (1854) 15 CB 365.
20. Castellain v Preston (1883) 11 QBD 380.
21. Macaura v Northern Assurance Co Ltd (n 10).
22. Nigerian Insurance Industry Reform Act 2025, s 120.
23. Prudential Staff Union v Hall [1947] KB 685.
24. Griffiths v Fleming [1909] 1 KB 805.
25. Hebdon v West (1863) 3 B and S 579.
26. Nigerian Insurance Industry Reform Act 2025, s 66(3)(a).
27. Nigerian Insurance Industry Reform Act 2025, s 68(1), (3) and (9).
28. Nigerian Insurance Industry Reform Act 2025, s 67(1) and (2).
29. Land Use Act, Cap L5, LFN 2004; Castellain v Preston (n 20).
30. Maurice v Goldsbrough Mort & Co Ltd [1939] AC 452.
31. University of Nigeria v Turner (1968) ALR Comm 290; Macaura v Northern Assurance Co Ltd (n 10).
32. Nigerian Insurance Industry Reform Act 2025, s 70.
33. Life Assurance Act 1774, ss 1 and 3.
34. Tomlinson v Hepburn [1966] AC 451; Maurice v Goldsbrough Mort & Co Ltd (n 30).
35. Inglis v Stock (1885) 10 App Cas 263.
36. Nigerian Insurance Industry Reform Act 2025, s 144(1).
37. Anderson v Commercial Union Assurance Co (1885) 55 LJQB 146.
38. Collingridge v Royal Exchange Assurance Corporation (1877) 3 QBD 173.
39. Nigerian Insurance Industry Reform Act 2025, s 71.
40. Nigerian Insurance Industry Reform Act 2025, ss 74 and 118 to 122.