Insights / Case law
Seven Cases That Shaped Insurance Law
Most coverage arguments in the London market still turn on a small set of principles settled more than a century ago. These seven authorities are the ones behind them.
1. Carter v Boehm (1766): utmost good faith
(1766) 3 Burr 1905; 97 ER 1162, King's Bench (Lord Mansfield)
Carter, Governor of Fort Marlborough in Sumatra, insured the fort against capture by a foreign enemy. He did not disclose that the fort could not withstand a European attack or that a French attack was likely. The French took the fort and the underwriter declined the claim.
Held: for the insured. Lord Mansfield set out the duty of utmost good faith and the duty to disclose material facts, but found that the matters not disclosed concerned the general political situation, which the underwriter knew or was presumed to know.
Why it matters: the case is the foundation of the disclosure duty and also of its limit: the insured need not disclose what the insurer already knows or ought to know. For UK business insurance the duty is now the duty of fair presentation under the Insurance Act 2015.
2. Lucena v Craufurd (1806): insurable interest
(1806) 2 Bos & PNR 269, House of Lords
Commissioners appointed to manage Dutch ships seized by the Crown insured the ships for their onward voyage to Britain.
Held: for the underwriters. The commissioners had only an expectation of benefit, not an insurable interest, so the policy was void. Lawrence J's wider test, that a person is interested where "advantage may arise or prejudice happen" to them from the circumstances affecting the property, did not carry the day; Lord Eldon required a legal or equitable relation to the property.
Why it matters: claims handlers still test whether the insured had a real legal or financial stake in the subject matter at the time of loss.
3. North British and Mercantile v London, Liverpool and Globe (1877): contribution
(1877) 5 Ch D 569, Court of Appeal
Grain owned by merchants was stored with wharfingers and destroyed by fire. The wharfingers had insured goods for which they were responsible; the merchants had separately insured their own grain.
Held: no contribution between the two sets of insurers. Contribution applies only where the policies cover the same interest. The wharfingers carried the primary liability as bailees, so their insurers bore the loss.
Why it matters: before seeking contribution, establish that both policies insure the same party, the same interest and the same risk. Where interests differ, the question is who is primarily liable.
4. Burnand v Rodocanachi (1882): limits of subrogation
(1882) 7 App Cas 333, House of Lords
Cargo insured under valued policies, including war risks, was destroyed by the Confederate cruiser Alabama. Underwriters paid a total loss. The United States later paid the cargo owners further compensation from a fund established by Act of Congress.
Held: for the assured. The compensation was, in Lord Selborne's words, "an act of pure gift" and was not paid to reduce the loss, so underwriters could not recover it.
Why it matters: subrogation reaches recoveries that reduce the insured loss, not gifts intended to benefit the insured alone. The donor's intention decides the point.
5. Castellain v Preston (1883): indemnity
(1883) 11 QBD 380, Court of Appeal
A vendor insured a house that was damaged by fire after contracts for its sale were exchanged. Insurers paid the vendor, and the purchaser then completed at the full contract price.
Held: the insurers could recover the insurance money from the vendor, who had suffered no net loss. Brett LJ stated that the insured is to be fully indemnified, "but never more than fully indemnified".
Why it matters: indemnity caps recovery at the insured's actual loss, and the insurer's subrogation rights are read widely to prevent double recovery.
6. Pawsey v Scottish Union and National (1907): proximate cause
(1907), cited in CII study materials as the source of the definition
The case is cited for the classic definition of proximate cause: "the active, efficient cause that sets in motion a train of events" which brings about the loss.
Why it matters: where an insured and an excluded peril combine, coverage turns on which cause was dominant or effective, not which came last in time.
7. Carlill v Carbolic Smoke Ball Co (1892): offer and acceptance
[1892] EWCA Civ 1; [1893] 1 QB 256, Court of Appeal · Judgment on BAILII
The company advertised a £100 reward to anyone who caught influenza after using its smoke ball as directed. Mrs Carlill did so, caught influenza and claimed the reward.
Held: for Mrs Carlill. The advertisement was a unilateral offer to the world, accepted by performing its conditions.
Why it matters: this is a general contract case, not an insurance case, but it explains why clear promotional promises and guarantees can create binding obligations.
General information only, not legal advice. Read the full judgment before relying on any authority.