is a family relationship alone enough to … 3.pdf · insurable interest in life insurance context...

DAGNE DAUKANTAITE∗

Vytautas Magnus University, School of Law

IS A FAMILY RELATIONSHIP ALONE ENOUGH TO CREATEAN INSURABLE INTEREST IN THE LIFE OF THE OTHER?

Contents

Introduction....................................................................................................... 351. Life Insurance in General.............................................................................. 362. Insurable Interest in Life Insurance Context................................................. 373. Public Policy Considerations, where the Purposes of the Insurable InterestDoctrine are Rooted ........................................................................................... 394. Different Types of Family Relations in Connection to the Insurable InterestRequirement....................................................................................................... 41

4.1. Concepts and Definitions in General.................................................................41

4.2. Husband-wife Relationship ...............................................................................42

4.3. Parent-child Relationship .................................................................................44

4.4. Sibling Relationship..........................................................................................47

4.5. Other Types of Family Relations.......................................................................485. Insurance Law of the Republic of Lithuania ................................................. 48Conclusions ....................................................................................................... 52Abstract in Lithuanian....................................................................................... 54

∗ DAGN DAUKANTAIT . Address: Vytautas Magnus University, School of Law,Daukanto 28, Kaunas 3000 Lithuania. E-mail: <[email protected]>

mailto:[email protected]

Dagn Daukantait Is a family relationship alone enough to create an insurable interest inthe life of the other? 35

Introduction

Every person lives one’s life being uncertain about what the next day will bring.We cannot predict our future. This uncertainty gives rise to the feeling of fear. Risk or thechance of loss is an inseparable part of human existence. Although we seek security, italways seems beyond our reach. Risk cannot be avoided completely because without riskthe future development would be impossible, life would be less comfortable, less excitingfor we would not have automobiles, planes, boats and many other things helping us day-to-day.

Since risk is a part of our life we must develop means to deal with it. Experienceindicates that we live in a world that can be both hard and cruel. Risk management is arational attempt to reduce or avoid the consequences of loss or injury. We live in anunsafe world, and we must face the possibilities of sickness, injury, death, financial lossor other unfortunate events that can occur. Insurance is the best way to deal with thatuncertainty, fear and to achieve the feeling of security.

This article will cover only life insurance, the beneficiary being a familymember, and will not touch upon other forms of insurance. The analysis of this problemmainly will be focused on the American (USA) law system, because here the distinctionbetween the laws of different states and different court decisions is extremely sharp.Those contrary views seem to be well grounded, reasoned, and having plenty ofsupporting arguments. Such opposite views on the same subject show that some judgeshave different perceptions of the person. There is a natural belief that all human beingshave strong morals, and that natural love and affection always prevail against otherfeelings, financial needs or selfishness.

It is not a bad idea to trust people so much. However, the other view should alsobe taken into account, namely, the view expressed by John Rawls, that a rationallythinking person is always selfish.1 There is an eternal intrinsic fight in every humanbeing, a fight between morals and personal needs. A person may act one way or anotherdepending upon the value he attaches to these two choices. Accordingly, the choice madeleads to two different extremes. One is the optimistic view that a person will alwayschoose to act in accordance with morals. The pessimistic view is that personal needs willalways prevail over the moral considerations.

Sometimes a court’s decision seems to be reached by reliance on one of theseapproaches. The best solution would be to take the middle approach. We cannot believeunconditionally that all people possess the same strong moral considerations, which makethem choose the correct way to act. Also, we cannot treat people like potential enemies,which can do much harm in order to achieve the result they selfishly desire. Thus, themiddle approach would be to trust people because otherwise it would be impossible tolive in the community, but not to trust them unconditionally. Due regard must be paid toall surrounding circumstances and facts, which could influence the behavior of a person.This middle approach, as being the most objective, will be used in analyzing the insurableinterest requirement in the family context.

The first part of this article will define the concept, purposes and functions of lifeinsurance and distinguish it from other forms of insurance. The second part will cover theinsurable interest doctrine and the ways of fulfilling this requirement. The following partwill explain the purpose of the insurable interest requirement, which is grounded inpublic policy. The fourth part of this article will analyze the scope of insurable interest inthe family context, namely, whether different types of family relations standing alone are

1 J rat Imbrasait , Law Theory (lecture notes, Kaunas, VDU, School of Law, 2000 fall).

International Journal of Baltic Law Volume 1 No. 2 (February, 2004) 36

enough to create an insurable interest in the life of the other. Finally, the last part willview insurance law of the Republic of Lithuania.

Significance of this article: Lithuanian insurance law, being a relatively youngbranch, needs supplement with some explanatory provisions, and USA experience in thisfield can stand as an example for the Lithuanian legislature.

The purpose of this article is to evaluate and analyze the insurable interestrequirement as between family members, and to affirm or negate the followinghypothesis: a family relationship standing alone is not enough to create an insurableinterest in the life of the other, e.g. some form of pecuniary interest in the continuance ofthe insured’s life is needed.

1. Life Insurance in General

There are different types of insurance contracts. Likewise, there are differentdefinitions of insurance. Insurance can be defined either broadly or narrowly, dependingon the type of insurance.

Broadly defined, insurance is a contract by which one party, for acompensation called the premium, assumes particular risks of the otherparty and promises to pay to him or his nominee a certain … sum ofmoney on a specified contingency.2

The most popular definition of life insurance is narrow: "a contract to makespecific payments upon the death of the person whose life is insured."3 Life insurancepolicies contain a specific term, which is absent from other forms of insurance contracts,namely - cestui que vie. This term is used to define the insured as a "person whose life isthe subject of the policy"4. The other characters involved - the insurer, the owner of thepolicy and the beneficiary are usual to the other forms of insurance also.

All insurance contracts, including life insurance, have several common elements.However, life insurance is quite distinctive. First of all, "a policy of life insurance is not amere contract of indemnity, but is a contract to pay the beneficiary a certain sum ofmoney upon the event of death".5 So it is a form of investment.6 Secondly, therequirement of insurable interest seems to be more stringent than in other types ofinsurance contracts.7 The nature and importance of the insurance object can explain this.Thirdly, unlike other forms of insurance, "life insurance faces the certainty of loss onevery policy"8. The fourth important distinction is that life insurance policies can provideonly dollars at the time of death,9 but human life cannot be estimated like this. Humanvalues such as love and affection simply cannot be replaced by dollars and cents.10

Finally, it is important that "life insurance cannot restore life"11. The functions and purposes of life insurance are mixed in some sense. The most

important function of life insurance is "to provide the means of avoiding major financial

2 43 Am Jur 2d, Insurance, §1.3 John F. Dobbyn, Insurance Law in a Nutshell (Minnesota: West Publishing Company,

1996), p. 7.4 Id.5 43 Am Jur 2d, Insurance, §3.6 See note 3: John F. Dobbyn. p. 81.7 43 Am Jur 2d, Insurance, §938.8 Numan A. Williams, Insurance: An Introduction to Personal Risk Management (Cincinnati,

Ohio: South- Western Publishing Company, 1984), p. 146.9 Id.10 Id.11 Id., p. 147.


loss when economic death occurs"12. Knowing that death is a certainty and taking intoaccount the fact that life insurance cannot restore life, a logical inference can be drawnthat life insurance insures against financial consequences of death, not the death itself.The purpose of life insurance is that it can help to "alleviate financial consequences of thepremature death"13. In other words, while life insurance is worthless to preclude theemotional suffering of a deceased’s family, it minimizes the economic loss and helps toavoid some costs associated with death.

As it has been mentioned earlier, the insurable interest requirement is a commonfeature to all forms of insurance contracts. However, it has a specific application inrelation to life insurance. This point has to be analyzed in order to proceed with thisdiscussion.

2. Insurable Interest in Life Insurance Context

Historically, the doctrine of insurable interest, while being the creation ofcommon law country, evolved in England, not in America. The Parliament enacted twostatutes - George II and George III - for regulation of property insurance and lifeinsurance respectively.14 Both statutes require showing an insurable interest in the subjectmatter insured before any contract of insurance can be entered into.15 When analyzing thewording of these two statutes, it seems that the purpose of enactment was to secure theinsurers against fraudulent claims. Anyway, for the purposes of this article it is worth tonotice that the Parliament transformed the principle of insurable interest into a rule oflaw,16 and consequently English courts enforced this rule.17 American legislature andjudiciary branches also adopted it.18

Nowadays, an insurable interest appears to be required in every state in theUSA.19 An insurable interest is necessary to the validity of an insurance contract.20 "[I]fno insurable interest exists, the contract is void"21.

It is not easy to define the concept and extent of insurable interest with precisionbecause the definition varies with every kind of insurance contract. In general, "whateverfurnishes a reasonable expectation of a pecuniary benefit from a continued existence of asubject of insurance is a valid insurable interest."22 However, such a definition seems tobe too narrow and imprecise to be applicable correctly to all the kinds of insurancecontracts. As it was mentioned above, life insurance is inherently distinctive from othertypes of insurance. The early English statutes recognized that distinction by separatingproperty and life insurance. Today the authorities in essence agree that "a distinction mustbe made between property insurance and life insurance in determining the question ofwhat amounts to an insurable interest."23 "For this reason, the nature and definition of

12 William H. Cummings, J. Mac Spears, Life and Health Pathfinder, Second Edition(Indianapolis: Pathfinder Publishers, 1988), p. 1-5.

13 J. J. Launie, George E. Rejda, Donald R. Oakes, Personal Insurance (Pennsylvania:Insurance Institute of America, Inc., 1987), p. 236.

14 See note 3: John F. Dobbyn. p. 78.15 Id.16 Id.17 Id., p. 79.18 Id., p. 80.19 60 ALR 3d 98.20 This aspect will be considered in the following part of this article.21 43 Am Jur 2d, Insurance, §938.22 Id.23 Id.


insurable interest and the time when it must exist are treated subsequently in relation tothe specific kind of insurance involved."24 Property insurance will not be analyzed furtherleaving an insurable interest in relation to life insurance the only object of analysis.

Also there is another important division related to life insurance, which isnecessary to consider because it affects the insurable interest requirement. "For thepurposes of the insurable interest doctrine, life insurance is divided into two distinctgroups - insurance taken out on one’s own life and insurance taken out on the life ofanother."25

The first group, the insurance taken out on one’s own life, is less problematic. Itis also not very important for this analysis. Thus, only the most general aspects will bediscussed in order to show that here the insurable interest requirement cannot be ignoredeither.

"The general rule is that every person has an insurable interest in his own life".26

Accordingly, a person may purchase a life insurance policy on his own life, making theproceeds payable to anyone he wishes.27 It follows that a beneficiary does not need tohave an insurable interest to be named in a policy of life insurance. However, there is animportant limitation to the above statement - a statute prohibiting life insurance in favorof beneficiaries who have no insurable interest in the life of the insured.28 However,whether such statute "applies to policies taken out by the insured himself for such abeneficiary depends in general upon the wording of the statute"29.

Relevant works on insurance outline one more limitation to the right in question.It is not created by law, but by insurance companies themselves. They restrict this right inorder "to avoid difficulties that can arise; for instance, this occurs when a person names afiancée as beneficiary, marries someone else and does not change the designation."30

Such restrictions are grounded on a company’s policy.31 Yet, even in the absence of astatute limiting the right to take out insurance on own life and designate a beneficiaryhaving no insurable interest, or in the absence of a restrictive insurance company’spolicy, one cannot be sure that a life insurance policy in question will not be invalidatedby a court. The courts will declare a policy invalid where the transaction is for thepurpose of speculation and is a mere cover for a wagering contract.32

The second group of life insurance, insurance taken out on the life of another,creates much more problems. Here the requirement that a beneficiary should have aninsurable interest in the life of the insured is strict. Still, the question of what constitutesthe necessary insurable interest arises immediately.

An insurable interest in relation to life insurance is defined in the InsuranceCodes of every state. For example, Alabama Insurance Code §316 provides as follows:

Insurable interest with reference to personal insurance is aninterest based upon a reasonable expectation of pecuniary advantagethrough the continued life, health or bodily safety of another person andconsequent loss by reason of his death or disability, or a substantial

24 Id.25 See note 3: John F. Dobbyn. p. 94.26 43 Am Jur 2d, Insurance, §974.27 See note 12: William H. Cummings. p. 3-13.28 43 Am Jur 2d, Insurance, §975.29 Id.30 See note 12: William H. Cummings. p. 6-18.31 Id.32 43 Am Jur 2d, Insurance, §974.


interest engendered by love and affection in the case of individualsclosely related by blood or by law.33

Such definition encompasses different types of relations, which can give rise to theinsurable interest in the life of another person. This definition seems to be divided intotwo parts. The first part covers relations, which are based upon expectancy of some sortof pecuniary benefit, for example creditor-debtor relationship or that of business partners.The second part covers relations among family members, based upon criteria of love andaffection prevailing between them. In this article the attention will be focused on thesecond of these two categories, namely, family relations.

The authorities are split on the question of what constitutes the requisite interestof one person in the life of another.34 An inference can be drawn that the reason for thisdisagreement is rooted in the complexity and broadness of the above definition. It gives abroad discretion to the courts to interpret the law as they see fit for the situation at issue.Such interpretation can lead to a declaration that life insurance policy in question isdevoid of insurable interest, rendering that insurance to be contrary to public policy. Thisresult leads to important consequences.35

3. Public Policy Considerations, where the Purposes of the InsurableInterest Doctrine are Rooted

The traditional definition calls insurance "a social device for the transference ofindividual risk to an insurance company, which, for a certain consideration, assumeslosses suffered by the insured."36 Since insurance has a great influence upon the society,it must protect the interest of the public it serves.37

There are two safeguards, namely, insurable interest and consent, which protectthe insured against the possibility that another person could financially benefit from theinsured’s death.38 Public policy considerations are remembered every time when any ofthese safeguards are somehow impaired while procuring a life insurance policy.

As it has been noted above, an insurable interest is necessary to the validity of aninsurance contract. It means that an absence of an insurable interest renders the policyunenforceable, illegal and void. The purposes of the insurable interest doctrine are rootedin public policy.39 Those purposes are prevention of wagering and removal of thetemptation to deliberately hasten the death of insured in order to receive the insuranceproceeds.40

A wager policy is a pretended insurance where no loss can be sustained in casethe event insured against happens because of absence of an insurable interest.41 It isgenerally agreed that such policies, in which the only interest is the destruction of thematter insured, are void as being contrary to public policy.42 Some states have statutesprohibiting wager policies, and if no statute has been enacted, such policies are beinginvalidated on the grounds of public policy.43 Another relevant consideration is that the

33 Mutual Savings Life Insurance Company v. Noah, 291 Ala. 444, 282 So. 2d 271 (1973).34 43 Am Jur 2d, Insurance, §976.35 See the following part of this article.36 See note 12: William H. Cummings. p. 1-5.37 Id., p. 3-12.38 Id.39 See note 3: John F. Dobbyn. p. 80.40 Id., p. 80-81.41 43 Am Jur 2d, Insurance, §939.42 60 ALR3d 98.43 43 Am Jur 2d, Insurance, §939.


lack of insurable interest can give rise to the intention of a beneficiary to hasten the deathof the insured person.

Basically, the same public policy purposes are pursued by requiring to have aconsent of cestui que vie before trying to take out or issue a life insurance policy. It is ageneral rule that a life insurance policy procured without the knowledge and consent ofthe insured person is against the public policy and unenforceable.44 As a result such apolicy is likewise void ab initio. An inference can be drawn that insurance procuredwithout the insured’s knowledge and consent indicates that a beneficiary possesses noinsurable interest in the life of the insured. No one can be permitted to obtain insuranceon the life of another without his knowledge and consent, whatever the relationshipbetween them is.45

However, there is an exception, which entails a controversy. Some authoritiesexpress a view that insurance on a spouse can be procured without his or her consent.46

Others say that such practice cannot be permitted, as it may "be a fruitful source ofcrime."47 The second view seems to be more acceptable for the following reasons. Firstly,the insurance is taken out on the life of an adult, who has one’s own opinion and must begiven a chance to participate in a decision making which concerns one’s own life. Everyperson is a separate and independent entity, so if someone attempts to interfere with one’slife, one’s consent should be obtained. Secondly, one cannot ignore the cases, whichsupport the above statement, namely, that a lack of consent can lead to a crime ofmurder.48 So it can be said that the costs of allowing such exception in relation to spousesoutweigh possible benefits, whatever they may be.

Authorities seem to be in accord on the point that an exception to a requirementof consent applies to a parent insuring the life of a child.49 "It is not against public policyfor a minor to contract for insurance",50 but a parent may insure an infant’s life withoutone’s consent.51

It is worth to notice that a beneficiary who intentionally takes the life of cestuique vie is prevented by the courts from receiving insurance proceeds.52 This principle isbased on considerations of public policy.53 The courts accept and widely apply theprinciple that no one should be able to benefit from his own wrong.54 For example, thecourt in Beck v. West Coast Life Insurance Company 55, where a husband killed his wife,explained that "it would be unconscionable to allow him to profit from his wrong." Suchbeneficiary is also precluded from inheriting the insurance proceeds.56 A few states havestatutes enacted for the purpose of dealing with such situations.57

The consequences of issuing life insurance in the absence of any of thesafeguards described above involve the insurer too. Tort liability can arise if a beneficiary

44 Id., §976.45 See note 3: John F. Dobbyn. p. 102.46 Id.47 43 Am Jur 2d, Insurance, §261.48 See Metropolitan Life Insurance Company v. Smith, 59 S.W. 24 (1959), or Ramey v.

Carolina Life Insurance, 244 S.C. 16 (1964).49 See note 3: John F. Dobbyn. p. 102.50 43 Am Jur 2d, Insurance, §193.51 Id., §261.52 See note 3: John F. Dobbyn. p. 151.53 27 ALR3d 794.54 44 Am Jur 2d, Insurance, §1715.55 Beck v. West Coast Life Insurance Company, 38 Cal. 2d 643, 241 P.2d 544 (1952).56 27 ALR3d 794.57 44 Am Jur 2d, Insurance, §1715.


attempts or actually murders the insured in order to receive the insurance proceeds.58 Thatliability arises because the insurer has a duty to investigate with reasonable care whethera beneficiary has an insurable interest in the continued life of the insured.59 Insurer canalso be held liable in negligence for issuing a life insurance policy without first obtainingthe signed consent from the insured.60 Also the potential liability of an insurer is noteliminated by the fact that such policy is void ab initio.61

In sum, those two simple safeguards discussed above have substantially reducedthe chances for abuse. "If one party could benefit from another’s death through insurance,the best interest of the public would not be served."62 Insurance would become themotivation for murder and fraud.63

4. Different Types of Family Relations in Connection to the InsurableInterest Requirement

4.1. Concepts and Definitions in General

In this article the term "family" will mean not only the immediate family. It willmean "a group of persons connected by blood, by affinity, or by law".64 "The term'family' is elastic, and it will be liberally construed. It is not confined to a husband andwife and their children."65

As it has been mentioned above, the authorities disagree on the question ofwhat constitutes a required insurable interest of one person in the life of another. Thesame applies to the family members insuring the life of each other. Cases dealing withthis issue are divided into two groups. The first one declares that a close familyrelationship alone is enough to create an insurable interest in the life of the other66. Thesecond one, in addition, requires an insurable interest to be based on expectancy ofsome pecuniary benefit or advantage from the continued life of the insured person67.Both these views will be analyzed in a discussion below.

The definition of the insurable interest formulated in Warnock v. Davis68, isgenerally accepted and often quoted by the courts of justice:

[I]n all cases there must be a reasonable ground, founded uponthe relations of the parties to each other, either pecuniary or of bloodor affinity, to expect some benefit or advantage from the continuance ofthe life of the assured.

As to the expectation of benefit or advantage from the continued life of theinsured the Court further opined that "[i]t is not necessary [for it to be] … always capableof pecuniary estimation."69 The above definition seems to be more in accord with the firstview as it declares that an insurable interest may arise out of relations by blood or affinityalone. However, it is not quite clear how close that relationship should be. It can only be

58 See note 3: John F. Dobbyn. p. 25.59 Liberty National Life Insurance Company v. Weldon, 267 Ala. 171, 100 So. 2d 696 (1957).60 See note 48: Ramey v. Carolina Life Insurance Company.61 See note 3: John F. Dobbyn. p. 29.62 See note 12: William H. Cummings. p. 3-12.63 Id.64 Bryan A. Garner, et. al. eds., Blacks Law Dictionary, Seventh Edition (Minnesota: West

Group, 1999), p. 620.65 Hosmer v. Welch, 107 Mitch. 470, 65 N.W. 280 (1895).66 43 Am Jur 2d, Insurance, §976.67 Id.68 Warnock v. Davis, 104 U.S. 775, 26 L. Ed. 924 (1881).69 Id.


said that "the closer the relationship is, the more likely will an insurable interest be foundto exist."70 The cases reveal that the relationship of a husband and a wife has been held tobe sufficiently close to create an insurable interest.71 The relationship of a parent and achild has been given the same status72. Other types of family relationships have been heldto be insufficient to create an insurable interest when standing alone.73 The relationshipbetween siblings stands somewhere on the dividing line74.

However, there is authority to the contrary, namely, that an insurable interest inthe life of another is a pecuniary interest75. This rule seems to be derived from the earlyEnglish statute George III.76

Pecuniary interest, in other words, economic interest, means money. Moneyshould not be understood only as the exact sum of dollars. It can have lots of differentforms, for example, food, clothing, education, daily support, or different servicesprovided without the payment thereof, and so on. It seems that a pecuniary benefit couldmean not only money actually received, but also the expenses saved. The court inRombach v. Piedmont & Arlington Life Insurance Company77 said that "when theinsurable interest arises, or is implied from relationship, it will be deemed to exist whenthe relationship is such that the…legal claim [arises]" upon the insured for services orsupport. Other say that a "pecuniary interest is tested by the factual expectancy ratherthan legal interest test."78 Anyway, the authorities seem to agree that a pecuniary benefitis something of value, which is already being received or is reasonably expected to bereceived in the future. The court in Morrell v. Trenton, etc., Insurance Company79 whilecommenting upon the language of Warnock v. Davis80 expressly

stated that the "expected benefit must consist in service, maintenance, or the like.…[I]t must be a pecuniary benefit, as distinguished from a mere sentimental or moralgratification." This court explained the words 'benefit or advantage from the continuanceof the life' to mean material or physical benefit or advantage.81

Further analysis will try to answer what test should be applied to different typesof family relations in order to fulfill the insurable interest requirement and remain inconformity with the public policy considerations, e.g. a close relationship test or anexpected pecuniary benefit test.

4.2. Husband-wife Relationship

It is universally accepted that a wife has insurable interest in the life of herhusband and vice versa, without more.82 Some states enacted statutes "permitting marriedwomen to insure their husbands’ lives."83 Although the spouses are related by law, asopposed to relation by blood, the above cited authorities seem to believe that the natural

70 60 ALR3d 98.71 Jennings et al. v. Jennings, 250 Ala. 130, 33 So. 2d 251 (1947).72 Woods, &c., v. Woods' Admr., 130 Ky. 162, 113 S.W. 79 (1908).73 See note 33: Mutual Savings Life Insurance Company v. Noah.74 Equitable Life Insurance Company v. R. R. Hazlewood, 75 Tex. 338, 12 S.W. 621 (1889).75 Rombach v. Piedmont & Arlington Life Insurance Company, 35 La. Ann 233 (1883).76 60 ALR3d 98.77 See note 75: Rombach v. Piedmont & Arlington Life Insurance Company.78 See note 3: John F. Dobbyn. p. 97.79 Morrell v. Trenton, etc., Insurance Company, 64 Mass. 282 (1852).80 See note 68: Warnock v. Davis.81 See note 79: Morrell v. Trenton, etc., Insurance Company.82 See note 3: John F. Dobbyn. p. 96.83 43 Am Jur 2d, Insurance, §978.


love and affection prevailing between them is just as strong as that between personsrelated by blood. This belief may be rooted in common law.

"At common law, husband and wife become by marriage one person" with alegal existence of a wife absolutely merged in that of her husband.84 The result of thiscommon law unity is "complete disability [of a married woman] to act as a legalperson."85 So only a husband can legally be able to contract on behalf of his family.86

These disabilities of a wife were abolished by the enactment of the MarriedWomen’s Acts, which is in force in almost all the states now.87 This means that a wifehas a right to contract in her name, on her behalf and independently of her husband asthey are considered as separate legal persons.

However, "[t]he law continues to recognize [the legal unity of the spouses] withrespect to certain rights, duties, and obligations arising from the marriage".88 Amongother duties, a husband, who is the head of the family,89 is under obligation to maintainand support his wife.90 A wife, in her turn, is under obligation to care for her husband insickness, to be his helpmate, to perform her household and domestic duties withoutcompensation therefor.91 These legal obligations and rights of spouses give rise to theexpectancy of a pecuniary benefit now and in the future. They are of pecuniary nature,whether it is support or household services.

An inference can be drawn that the relationship of spouses, while being a veryclose one, has a pecuniary element in it too. From this point of view there is no need todecide which one of the tests discussed above should be used, because the insurableinterest in the life of the spouse can be predicated upon both, the close relationship andthe expectancy of some pecuniary benefit from the continued life of the spouse.

Some authorities propose that the amount of life insurance policy of a husbandand a wife should be based on their earning capacity. If spouses earn equal amounts, theyshould have equal amounts of life insurance, when one of them earns more, that spouseshould carry more life insurance92. This statement seems to be a reasonable one as it is inconformity with the purpose of life insurance, e.g. the protection against the financialconsequences of death.93 This proposal is likewise based on the economic interest test.

Some sources94 conclude that a wife has an insurable interest in the life of herhusband. This conclusion is based on the argument that "she is financially better off if herhusband is alive" and "she has no economic incentive to do away with her husband".Here the existing insurable interest is also based on some form of financial interest in thecontinued life of the insured spouse.

The cited authorities seem to treat a wife as dependent on her husband forsupport.

The court’s conclusion in the Gambs case95 is that a wife has a direct interest inthe life of her husband. "The law requires him to support her, and in most cases she isactually dependent upon him for support." This conclusion seems to have its basis in the

84 41 Am Jur 2d, Husband and Wife, §2.85 Id., §16.86 See id., §137 for the exceptions.87 Id., §17.88 Id., §2.89 Id., §10.90 Id., §8.91 Id., §9.92 See note 8: Numan A. Williams. p. 155.93 See the first part of this article.94 See note 12: William H. Cummings. p. 3-12 – 3-13.95 Henry Gambs, Public Administrator in charge of Estate of Amanda Holliday v. Covenant

Mutual Life Insurance Company, 50 Mo. 44 (1872).


common law. The court expressly accepts the rule that the insurable interest in the life ofthe other must be a "direct and definite pecuniary interest", and declares that "a personhas not such an interest in the life of his wife or child, merely in the character of husbandor parent." This decision clearly rejects the view that the husband can have an insurableinterest in the life of his wife only because of the relationship of spouses. However, awife has an insurable interest in the life of her husband because she has "a right to look tothe husband for support", which constitutes an expectancy of a pecuniary benefit.

The Gambs case is rather exceptional. The weight of authority recognizes bothspouses to have a reasonable expectancy of pecuniary benefit from the continued life ofthe other as a result of their interdependence, which arises out of their mutual legalobligations.

There is a different situation when the spouses are divorced. "[A]fter a divorce[or the annulment of the marriage], the insurable interest of a wife in the life of herhusband ceases."96 However, this affects only her right to procure insurance on his lifeafter the divorce, but not necessarily terminates "the right to receive the proceeds … bythe mere fact that the parties are divorced subsequently to the issuance of the policy."97

The cessation of the insurable interest can be explained by the fact that the relationship ofa husband and a wife is terminated together with the marital rights and obligations of thespouses. In such situation the test of reasonable expectancy of pecuniary benefit shouldbe applied in order to give a wife an insurable interest in the life of her former husband.The pecuniary benefit in question could be alimony, which the husband is ordered to payhis wife by the decree of divorce, or his duty to support their children.98

In sum, a relationship of a husband and a wife includes a pecuniary element.Thus, there is no need to decide how an insurable interest between them should be tested.Accordingly, this type of relationship is in itself sufficient to create an insurable interestin the life of the other. However, proof of a financial interest is required when a personwishes to procure a policy of insurance on his former spouse’s life.

4.3. Parent-child Relationship

Presumably, the parent-child relationship, arising from ties of blood, is thestrongest one of all. "[N]o relationship … is more sacred or more binding than that ofparent and child."99 These ties uniting a parent and a child are the main reason why somecourts conclude that this type of relationship is enough to give an insurable interest in thelife of the other, and no additional element is required. It has been held that a child has aninsurable interest in the life of his parent,100 and a parent has an insurable interest in thelife of his child.101

However, this is not a universal rule. There is some authority holding that this typeof relationship is not sufficient, and requiring some pecuniary interest in addition to it.102

Some courts accord insurable interest unconditionally to a relationship of aparent and a minor child.103 It is obvious that a minor is totally dependent upon hisparents for support. The loving parents care for him, give a place to live, food, clothing,various gifts and all other things the child needs. "The death of a young parent is tragic,

96 43 Am Jur 2d, Insurance, §978.97 70 ALR3d 348.98 43 Am Jur 2d, Insurance, §978.99 See note 72: Woods, &c., v. Woods' Admr.100 Reserve Mutual Life Insurance Company v. Kane , 81 Pa. 154 (1876).101 Williams v. Washington Life Insurance Company, 31 Iowa 541 (1931).102 43 Am Jur 2d, Insurance, §981.103 See note 3: John F. Dobbyn. p. 96.


partly because children can be left without proper financial support."104 It is consideredthat a minor always has a direct pecuniary interest in the continued lives of his parents inaddition to a very close relationship. Moreover, a reference to the legal parental duty toprovide support and maintenance to their children supports this finding.

The same cannot be said about a parent. He may have no economic interest inthe life of his minor child. Such a parent does not have an insurable interest in the life ofhis child in jurisdictions, which follow the rule that some pecuniary interest is essentialand that a relationship in question is not enough. "Even in such jurisdictions, however, afather has an insurable interest in the life of a minor to whose earnings he is entitled."105

A requirement that a parent should have a pecuniary interest in the life of his minor childseems to be reasonable in the light of Crawford case106. In that case the father procuredthe policies on the lives of his three minor children with the intention of killing them inorder to collect the proceeds. Of course, such disaster will not occur every time when aparent purchases a policy on his child’s life, while having no pecuniary interest therein. Itshould not be understood that love and affection are worthless as compared to money.However, it is worth to remember that the insurable interest doctrine is a safeguard forthe benefit of the insured.

While the prime reason behind [the insurable interest]rules seem to be that the insured is safer if the beneficiary will suffersome loss from his death, it may be observed that some beneficiarieswith a valid interest in the insured’s life still consider the insuranceproceeds more valuable than the insured’s continued life.107

That is why insurable interest should be tested relying on more objective criteriathan love and affection, which is totally subjective in its nature. Another thing toremember is the purpose of life insurance, e.g. protection against the financialconsequences of death. Though the death of a child is tragic, it does not bring majoreconomic losses along with it.

A different situation arises in the parent-adult child relationship. The courts seemto be more reluctant to recognize any of them as having an insurable interest in the life ofthe other based on the relationship alone. This can be explained by the fact that an adultchild is usually no longer dependent upon his parents. He leaves his parents’ home andcreates his own family.

However, some courts conclude that this relationship is in itself sufficient togive an insurable interest in the life of the other, and no other element is required. Forexample, the court in Woods case108, while reaching the above conclusion, speaks mostlyof "the duties due from children to their parents", which "arise from the principle ofnatural justice and retribution". Nevertheless, this language contains a reference to apecuniary element because an obligation or duty owed by one person to another createsan expectancy of some pecuniary benefit from the continued life of the other. Anyway,such inference indicates that only parents have insurable interest in the lives of their adultchildren, but not vice versa.

The approach that a pecuniary interest is required to sustain the validity of a lifeinsurance contract and that a mere relationship of a parent and an adult child is notsufficient seems to have greater support in case law. The court in Volger case109, while

104 See note 8: Numan A. Williams. p. 191.105 43 Am Jur 2d, Insurance, §981.106 West Coast Life Insurance Company v. Crawford, 58 Cal. App 2d 771, 138 P2d 384

(1943).107 9 ALR3d 1172.108 See note 72: Woods, &c., v. Woods' Admr.109 The Continental Life Insurance Company v. Volger, 89 Ind. 572 (1883).


reaching the decision that a daughter has no interest in her mother’s life, expressly stated:"[t]he law is well settled that a policy … upon the life of another, in the continuance ofwhose life the assured has no pecuniary interest, is void, as being against public policy."This means that an insurable interest must be a pecuniary interest. The court criticizes theapproach "that near relationship, as between parent and child, is sufficient foundationupon which to rest an insurable interest" by saying that it "is not sustained by the weightof authority."

Justice Black employed a very similar reasoning in The Prudential InsuranceCompany v. Hunn110, concluding that a mother has no insurable interest in the life of herson. The opinion of the court contains the following language: "[t]he beneficiary musthave had an insurable interest of a pecuniary character, or of that nature, either present orprospective, at the time the policy had its inception." The judge, as distinguished from theWoods case, declared that there is no legal obligation on the part of the children tosupport their parents, so the court cannot infer from the fact of relationship alone suchinsurable interest, which would uphold a policy.

There are cases where a policy was procured without the consent of the insuredparent.111 This immediately indicates lack of insurable interest and leads to a conclusionthat there is a pecuniary interest, but it is against the continuance of the insured’s life.

The Hogan case112 is important and often cited by courts. Here the court statedthat

the mere relation of father and son, where both parties are ofmature years, and live apart, in independent pecuniary circumstances,and mutually entirely independent of each other, and having nobusiness relations with each other, does not create an insurable interestin the son on the life of the father.

The above statement clearly indicates that this court accepts the view, whichrequires a finding of an insurable interest based on the expectation of advantage whichcan be derived from the continued life of the insured. The opinion cites Mr. May’sTreatise on the Law of Insurance, that the relationship is "of little importance except astending to give rise to the circumstances which justify a well-founded expectation ofpecuniary advantage from the continuance of the life insured, or risk of loss from itstermination. "113

Thus, with respect to insurance in parent-child context, it would be moreobjective to require the existence of an insurable interest based on the expectancy ofsome pecuniary benefit from the continued life of the insured, than insurable interestbased on such subjective criteria as love and affection inherent in a parent-childrelationship. This approach is sustained by the weight of authority. The only exceptioncan be allowed with respect to a parent-minor child relationship because it contains apecuniary element therein. That pecuniary element is derived from the legal obligation onthe part of the parents to support their minor children and from the fact that a minor istotally dependent upon his parents.

110 The Prudential Insurance Company v. Hunn, 21 Ind. App 525, 52 N.E. 772 (1899).111 See Chicago Guaranty Fund Life Society v. George A. Dyon, 79 Ill. App 100 (1898).112 Guardian Mutual Life Insurance Company Of New York v. Patrick Hogan, 80 Ill. 35

(1875).113 Id.


4.4. Sibling Relationship

The degree of relationship within which an insurable interest exists is not clearlydefined. The closer the relationship, the more likely an insurable interest will be found.The relationship between siblings seems to be on the dividing line, since "[t]he decisionsare not in accord on the question whether one has, by reason of relationship alone, aninsurable interest in the life of a brother or sister."114

The case Lord v. Dall115 is especially important. It was the case of firstimpression in the USA. The question raised in this case was whether a life insurancepolicy "is a contract, which can be enforced by the laws of this State; the law of England,as it is suggested, applicable to such contracts, never having been adopted and practicedupon in this country." The court further noted that there was no precedent of an actionupon a policy of this nature and turned its attention to the practice of European countries."It seems that these insurances are not favored in any of the commercial nations ofEurope, except England; several of them having expressly forbidden them." The courtcited the reason for that given in France, "that it is indecorous to set a price upon the lifeof man, and especially a freeman, which … is above all the price", and criticized it asbeing 'singular'. This case is important because the American court accepted and appliedthe English insurable interest doctrine in relation to life insurance for the first time. Thiscourt accepted the rule that "the interest must be a pecuniary, legal interest, to make thecontract valid; one that can be noticed and protected by the law".116 The conclusion that asister has an insurable interest in the life of her brother was reached in light of evidenceshowing that "the brother was her sole means of support and absent the policy, thebrother’s death would leave her in complete want."117

Subsequently, a number of jurisdictions started to apply the rule that in order toconstitute insurable interest there must be some expectation of pecuniary benefit from thecontinued life of the insured in addition to relationship of the parties. It is universallyagreed that "the presence of an [additional] economic interest in having the life of theinsured continue is a factor heavily favoring, if not determining, the validity of thepolicy."118 The following examples clearly illustrate this rule. A sister has an insurableinterest in the life of her brother who supports and educates her119. A sibling, being apartial dependant of her brother, has an insurable interest in his life120. A person has aninsurable interest in the life of his brother when he is his creditor121. Also, a man has aninsurable interest in the life of his brother who is a business partner122. This is true evenin those jurisdictions which hold that "an insurable interest does not arise from the merefact of the kinship shown, but must be a pecuniary one, and be disclosed by the factsalleged."123

Distinction must be made between the policies taken out on one’s own life andthose procured on the life of the other because this affects the requirement of an insurableinterest. While holding that the mere relationship between siblings is sufficient to createan insurable interest in the life of either of them, the authorities often cite cases where a

114 43 Am Jur 2d, Insurance, §984.115 Lord v. Dall, 12 Mass. 115 (1815).116 Id.117 Id.118 60 ALR3d 98.119 See note 115: Lord v. Dall.120 Williams v. Northeast Mutual Insurance Association, 72 S.W. 2d 166 (1934, Mo. App).121 William B. Lewis v. The Phoenix Mutual Life Insurance Company, 39 Con. 100 (1872).122 Bonistalli v. Bonistalli, 269 Pa. 8, 112 A. 7 (1920).123 Miller v. Traveler’s Insurance Company, et al., 81 Ind. App 618, 144 N.E. 554 (1924).


policy procured by the insured designates a sibling as a beneficiary.124 This decision isbased on the common law rule that "every person has an insurable interest in his own life… although the beneficiary named … [may be] without any insurable interest therein"125,and it should not stand as a rule in cases where a policy is procured on the life of theother. This article will ignore the decisions reached by mixing the cases with those twodistinctive types of life insurance policies.

Most courts dealing with cases where a policy is taken by a beneficiary on thelife of the sibling seem to accept the view that a pecuniary interest in the life of theinsured is required in order to sustain the validity of the said policy.126

Some courts express the view that a more liberal rule should be applied.127 It isobvious that liberalization of rules is sometimes very helpful because it softens therequirements and simplifies procedures. However, this is not true when life insurance isat issue. It is a widely accepted truth that human life is the most valuable and preciousthing on Earth. Thus, no liberalization should be allowed if it could lead to a slightest riskof losing this valuable.

4.5. Other Types of Family Relations

The authorities universally agree that other types of family relations are notsufficient to create an insurable interest in the life of another. In addition "a factualexpectancy of economic benefit is required"128. A relationship between cousins is tooremote to constitute an insurable interest in human life and health.129 Also, it is generallyagreed that in-law relations are not sufficient to confer an insurable interest on abeneficiary.130 The same applies to relations between an uncle and a niece131; an aunt anda nephew132; a grandfather and a granddaughter133.

All decisions concerning these types of relations unanimously agree that aninsurable interest in the life of the other must be tested by an expectancy of somepecuniary benefit to be derived from the continued life of the insured.

5. Insurance Law of the Republic of Lithuania

Lithuania is on the way to European Union. Accordingly, Lithuanian laws haveto comply with the European Community’s (EC) laws and regulations. The same appliesto insurance law as well.

124 For example, such cases are: Phillips’ Estate, 238 Pa. 423, 86 A. 289 (1912); Aetna LifeInsurance Company v. France, 94 U.S. 561, 24 L. Ed 287 (1876).

125 See note 123: Miller v. Traveler’s Insurance Company.126 See, for example, Gulf Life Insurance Company v. Davis, 52 Ga. App 464, 183 S.E. 640

(1936); or see note 121: William B. Lewis v. The Phoenix Mutual Life Insurance Company.127 Clarence Hodge v. Globe Mutual Life Insurance Company, 274 Ill. App 31 (1934).128 See note 3: John F. Dobbyn. p. 97.129 National Life & Accident Insurance Company of Nashville v. Alexander, 226 Ala. 325,

147 So. 173 (1933).130 National Life & Accident Insurance Company v. Ball, 157 Miss. 163, 127 So. 268 (1930).131 Bell v. National Life & Accident Insurance Company, 41 Ala. App 94, 123 So. 2d 598

(1960).132 Commonwealth Life Insurance Company v. George, 248 Ala. 649, 28 So. 2d 910 (1947).133 Burton v The Connecticut Mutual Life Insurance Company, 119 Ind. 207, 21 N.E. 746

(1889).


The objective of the EC, e.g. "a single market for insurance"134, was achieved bymeans of three generations of insurance directives135. The first generation was concernedwith the right of establishment, the second - with freedom to provide insurance by way ofservices, and the third converted these two basic principles into the single market.136 Thethree Life Directives137 left the regulation of insurance activity for competence of eachmember state.138 Thus, this part will review insurance law of the Republic of Lithuania inorder to answer what constitutes an insurable interest in the life insurance context.

In Lithuania life insurance as a separate branch of insurance activity evolvedonly in 1996, when the statute on insurance139 separating life and non-life insurance wasenacted.140 This was done in reliance upon the EC requirement that life and non-lifeinsurance must be separated.141 Western life insurance traditions make only first steps inLithuania142, and the necessary legal norms are only starting to emerge143.

The review of existing legal norms should start by noting that the Constitution ofthe Republic of Lithuania is silent about the insurance activity.144

There is no insurance code in most West European countries, that is why criticssay that insurance law is not a separate, self-dependent branch of law, but a mere civillaw institute.145 Lithuania is not an exception because the Civil Code146 is the main legalsource regulating insurance activities.147 However, the Civil Code provides only the mostgeneral norms of insurance law and it can be applied only if other laws on insurance donot provide otherwise.148 There is no provision in the Civil Code, which could give ananswer to the question raised above.

The Law on Insurance of the Republic of Lithuania, while complying with theEC requirement to separate life and non-life insurance149 will be revised again in order toachieve membership in EC150. This statute is not explicit enough and sometimes is silentabout some aspects of insurance activity. Thus, it would be useful to supplement thestatute with certain explanatory norms.

This statute does not provide whether the insurable interest doctrine is acceptedby the Lithuanian legislature. The only possible reference to it can be found in Article

134 Robert Merkin, Angus Rodger, EC Insurance Law (New York: Addison WesleyLongman, Inc., 1997), p. 1.

135 Id., p. 3.136 Id.137 First Council Directive 79/267/EEC – Taking-up and pursuit of the business, 5 March

1979. Second Council Directive 90/619/EEC – Provisions to facilitate effective exercise offreedom to provide services, 8 November 1990. Third Council Directive 92/96/EEC – amending79/267/EEC and 90/619/EEC, 10 December 1992.

138 Rimantas Stankevi ius, "Lietuvos Draudimo Teis s altiniai", Teis (2002, t. 42), p. 125.139 Law on Insurance of the Republic of Lithuania (1996 07 10, Nr.I-1456).140 Dr. Vytautas Kindurys, "Gyvyb s Draudimas Lietuvoje", Lietuvos kis (2002, Nr.9-12), p.

38.141 J. epinskas, ir kt., Draudimas (Kaunas: Pasaulio Lietuvi Kult ros, Mokslo ir vietimo

Centras, 1999), p. 30.142 Au ra Maldeikien , "Kod l Verta Drausti Gyvyb ?” Mokes inios (2002, Nr. 26(280),

2002 07 01-07).143 See note 141: J. epinskas, p. 146.144 See note 138: Rimantas Stankevi ius, p. 119.145 Id., p. 120.146 Civil Code of the Republic of Lithuania (2000 07 18, Nr.VIII-1864).147 See note 138: Rimantas Stankevi ius, p. 120.148 See note 146: Civil Code of the Republic of Lithuania, Art. 6.1018.149 Law on Insurance of the Republic of Lithuania, in. (2002, Nr. 60-2411), Art. 5.150 See note 141: J. epinskas, p. 149.


3151, which reads as follows: "subject matters of insurance may be economic interests …related to the length of a person’s life"152. However, the above statement is wrong. Thearticle in question defines interests, which can be a subject matter of an insurancecontract, and it has nothing to do with an insurable interest requirement.

The characters, other than an insurer, involved in a life insurance contract are asfollows. First, there is an insured who contracts with insurer. He must pay the premiumsand is entitled to an insurance payment after an insured event occurs153. Second, there is acovered person, e.g. cestui gue vie. The third one is a beneficiary. One person is specifiedin the insurance type regulations, not in the contract154. The same person can be any or allof these characters.

The Lithuanian insurance law recognizes that it is necessary to obtain a writtenconsent of cestui gue vie on the appointment of the beneficiary. In practice, the coveredperson fills in and signs a questionnaire, and signs an application for insurance, inpresence of an insurance agent. It is an achievement that this safeguard for the benefit ofcestui gue vie was adopted by the Lithuanian legislature. However, the statute underdiscussion is silent about the purpose of this safeguard, e.g. the prevention of wageringon the length of human life. There is no statutory provision which would explain whathappens to the insurance proceeds in case a beneficiary hastens the death of a cestui guevie. Thus, it is not clear whether the proceeds should be included in the estate of thedeceased or retained by an insurance company, and whether the said beneficiary beingheir of the deceased can be allowed to inherit those insurance proceeds. These gapsshould attract the attention of the Lithuanian legislature.

The statute is not specific as to who can be a beneficiary of a life insurancecontract. A beneficiary is defined as "a person specified in a contract of insurance at thewish of the insured or the person named by the covered person."155 This provision isunclear as it does not specify what type of relationship must exist between a beneficiaryand cestui gue vie, and this can lead to an inference that they can even be strangers toeach other. Some insurers express a view that only family members can insure the livesof each other because an income tax benefit is available only in such circumstances.156

Others say that there is no such limitation, and people in no way related to each other canobtain an insurance policy on other’s life.157 However, they agree that the existing lawdoes not give an answer to this question, and this situation leads to uncertainty anddifferent practices by the insurers. The need for an explanatory statutory provisionbecomes obvious.

An exceptional situation arises when a minor child is involved. A minor is notcapable of contracting for life insurance, so his parents can do that instead of him.158 Thestatute expressly forbids insuring the life of a minor for the benefit of any person otherthan a minor himself.159 However, it is not clear who has a right to insurance proceeds incase of minor’s death. Some insurers solve this problem by designating a contingentbeneficiary who receives an insurance benefit in the event of the insured child’s death.160

More reasonable solution, which would conform to the statutory provision cited above, is

151 John Chernosky, Insurance Law (lecture notes, 2002 fall).152 See note 149: Law on Insurance of the Republic of Lithuania, Art. 3.153 Id. Art. 2.154 Id.155 Id.156 Romualda Brasien , conversation with the authoress, Kaunas, 12 05 2003.157 Karolis Vinci nas, communication with the authoress on the phone, 11 05 2003.158 See note 141: J. epinskas, p. 170.159 See note 149: Law on Insurance of the Republic of Lithuania, Art. 10.160 See note 157: Karolis Vinci nas.


to include an insurance benefit in the estate of the deceased child.161 Thus, we are facedwith a lack of express statutory provision here as well.

It is also important that the Lithuanian insurance law, as a relatively youngbranch of law, has no case law relevant to this article. Thus, it is not possible to haverecourse to court decisions that would explain unclear statutory provisions.

However, there is a complimentary progress in Lithuanian insurance law,namely, preparation of a project of Law on Insurance Contract of the Republic ofLithuania,162 which introduces an insurable interest requirement into Lithuanianinsurance law. The concept of an insurable interest is defined there as "a loss sustainableby an insured or a covered person in case the event insured against occurs".163 The projectfurther provides that "it is an indispensable condition for a damage insurance contractthat an insured or a covered person has a valid insurable interest, capable of pecuniaryestimation"164. Otherwise, the contract is void.165 Thus, Lithuania recognizes the need ofan insurable interest requirement. Moreover, it accepts the rule that an insurable interestin the subject matter insured should be a pecuniary interest in the preservation of aninsurance object.

However, the definition of the damage insurance contracts encompassesproperty insurance, civil liability insurance and health insurance, leaving life insuranceoutside the definition’s scope.166 This is based on the nature of the insurance proceeds, e.g. whether the proceeds paid are equal to an amount of insurance, or they cover only thedamages sustained.167 The articles concerning an insurable interest requirement are notintended to apply to life insurance contracts. This is not a good idea. First, the subjectmatter of life insurance has a greater value than that of other forms of insurance. It shouldbe afforded the same or even greater protection. Second, an inclusion of life insuranceinto a definition cited above would solve a relevant issue of who can be a beneficiary of alife insurance policy. Thus, a person having a pecuniary interest in the continued life ofthe covered person could be appointed as a beneficiary.

In sum, the analysis of the Lithuanian insurance law yields a need to supplementexisting legal norms with new explanatory provisions and fill the gaps regarding theissues mentioned above. A great achievement is a project of Law on Insurance Contract,which illustrates the first attempt to define an insurable interest requirement and insert itinto the Lithuanian legal system. The analysis of a settled and comprehensive Americaninsurance law can stand as a recommendation to the Lithuanian legislature of a way toimprove Lithuanian insurance law. In order to have a properly applied law, it should beclear to insurance companies, which face it in their day-to-day business, and also to thepotential life insurance consumers.

161 See note 156: Romualda Brasien .162 Law on Insurance Contract, National Insurance Supervisory Board, project (2003).163 Id. Art. 2.164 Id. Art. 7.165 Id. Art. 12.166 Id. Art. 4.167 Id.


Conclusions

It is widely recognized that insurance is necessary for the economic developmentof a country. With respect to consumers it is the best way to achieve security.

In this article mostly American insurance law was analyzed. It is settled andcomprehensive, thus it could stand as an example to Lithuania that is making only firststeps in this branch of law.

In the USA the need for life insurance is widely recognized as it helps toalleviate financial consequences of death. An insurable interest, which is necessary to thevalidity of an insurance contract, is required in every state in the USA.

An insurable interest and consent are two important safeguards for the benefit ofthe insured, the purposes of which are rooted in public policy. Those purposes areprevention of wagering and removal of the temptation to deliberately hasten the death ofthe insured in order to receive the insurance proceeds. A life insurance policy procured ina way that impairs any of those two safeguards is invalidated on the public policygrounds. Issue of such policy has important consequences for the insurer, too, becausetort liability can arise if a beneficiary attempts or actually murders the insured in order toreceive the insurance proceeds.

Authorities disagree on issue what constitutes a required insurable interest in afamily context. There are two different views. First one states that a close relationshipalone is enough to create an insurable interest in the life of the other. The second viewsuggests that some sort of additional pecuniary interest in the continued life of the insuredis necessary to the validity of an insurance contract. This article supports the secondapproach. An insurable interest as a safeguard should be tested by more objective criteriathan natural love and affection inherent in a family relationship, which is totallysubjective in its nature.

The article reveals that spouses have a pecuniary interest in the life of the other.This finding is based on their mutual legal obligations arising from the marriage, whichlead to an expectancy of a pecuniary benefit from the continued life of the spouse. Thus,this type of relationship, while being a very close one, has a pecuniary element in it, too.After a divorce the insurable interest in the life of a spouse ceases. However, a reasonableexpectancy of a pecuniary benefit, such as alimony or husband’s duty to support thechildren, gives a wife an insurable interest in the life of her former husband.

With respect to a parent-child relationship, a minor child always has a directpecuniary interest in the continued lives of his parents. A reference to the legal parentalduty to support their children leads to this finding. The same cannot be said about aparent. The purpose of life insurance and the fact that an insurable interest should betested by objective criteria support a requirement that a parent has a pecuniary interest inthe life of his minor child. A parent and an adult child have no insurable interest in thelife of each other, unless one is somehow dependent upon the other.

Cases concerned with a sibling relationship accord an insurable interest to onewho has a pecuniary interest in the life of the insured. There are few cases holding that asibling relationship alone is enough to create an insurable interest in the life of the other.However, these decisions failed to make a distinction between the policies taken out onone’s own life and those procured on the life of the other, and were reached relying on ageneral rule that everyone has an insurable interest in his own life. Thus, they are out ofthe scope of this article.

With respect to other family relations, an insurable interest must be tested by areasonable expectancy of some pecuniary benefit to be derived from the continued life ofthe insured person.


This article reveals that a family relationship alone does not create an insurableinterest in the life of the other, and that an expectancy of a pecuniary benefit to be derivedfrom the continued life of the insured person is necessary in addition to it.

Lithuanian insurance law is a relatively young branch of law. There is no wonderthat the analysis of Lithuanian insurance law yields a need to supplement the existinglegal norms with new explanatory provisions and fill the gaps. A great achievement is aproject of Law on Insurance Contract, which illustrates the first attempt to define aninsurable interest requirement and introduce it to the Lithuanian legal system. Lithuaniaaccepts the rule that an insurable interest in the subject matter insured should be apecuniary interest. However, the articles concerning an insurable interest requirement arenot intended to apply to life insurance contracts. The analysis of a settled andcomprehensive American insurance law may stand as a recommendation to theLithuanian legislature like a way to improve Lithuanian insurance law. In order to have aproperly applied law, it should be clear to insurance companies, which face it in theirday-to-day business, and also to the potential life insurance consumers.


Abstract in Lithuanian

Dagn DaukantaitAR EIMOS NARI TARPUSAVIO RY IAI YRA PAKANKAMADRAUDIMO INTERESO, SUSIJUSIO SU KITO ASMENS GYVYB S

STINUMU, ATSIRADIMO S LYGA?Santrauka

Draudimas turi didel reik kiekvienos alies ekonominiam vystymuisi.Draudimo paslaug vartotojui tai yra geriausia priemon apsaugoti save, savo eim beiturt . Gyvyb s draudimas neabejotinai yra vienas pigiausi ir skaidriausi taupymo b .

iame straipsnyje daugiausia nagrin jama Jungtini Amerikos Valstij (JAV)draudimo teis , kadangi, b dama pla iai ir i samiai reglamentuota, ji gali b ti puikuspavyzdys pirmus ingsnius ioje teis s akoje engian iai Lietuvai.

Kiekviena JAV valstija pripa sta, jog gyvyb s draudimo sutartis, sudarytaneturint draudimo intereso, negalioja. is apribojimas yra skirtas apdrausto gyvyb sdraudimu asmens apsaugai. Kita apsaugos priemon slypi reikalavime gautiapdraud iamo asmens sutikim prie sudarant gyvyb s draudimo sutart . ios dviapdraustojo asmens apsaugos priemon s tvirtintos siekiant vie osios tvarkos ir moral s(public policy) tiksl : u kirsti keli savanaudi kam piktnaud iavimui, susijusiam suapdraustojo gyvyb s trukme, bei post miui s moningai sukelti draudimin vyk su tikslugauti draudimo i mok . Gyvyb s draudimo sutartis, sudaryta neturint draudimo interesoar negavus apdraustojo sutikimo, pripa stama negaliojan ia remiantis vie osios tvarkosir moral s principais. Be to, draudikui, sudariusiam toki sutart , gali kilti deliktinatsakomyb , jei naudos gav jas nu udo apdraust ar bando tai padaryti, siekdamas gautidraudimo i mok .

Klausimas, kokia yra draudimo intereso apimtis, neturi vienareik mio atsakymo.Egzistuoja du skirtingi po riai. Pirmasis teigia, jog artimas tarpusavio ry ys savaimesukuria draudimo interes , susijus su kito asmens gyvyb s t stinumu. Antrasis reikalaujapapildomo finansinio (pecuniary) intereso. Straipsnyje pritariama antrajam po riui.Draudimo interesas apsaugo apdraust . Norint, kad i apsauga tinkamai veikt ,draudimo intereso egzistavimo pripa inimui nepakanka subjektyvi kriterij kaip eimosnari tarpusavio meil ir prisiri imas. Protingas tik jimasis tam tikros finansin s naudos,susijusios su apdraustojo gyvyb s t stinumu, yra kur kas objektyvesnis draudimo interesopripa inimo testas.

io klausimo i samesn analiz parod , jog vienas sutuoktini gali tik tisfinansin s naudos, susijusios su kito sutuoktinio gyvenimo t stinumu. Susituok vyras irmoteris gyja tam tikras teises vienas kito at vilgiu, tuo pa iu kyla ir pareigos. Vyraslaikomas sipareigojusiu i laikyti ir apr pinti savo mon . Tuo tarpu, mona turi vykdytivairias, su nam ruo a susijusias pareigas. ie sipareigojimai yra finansinio pob io.

Taigi, sutuoktini tarpusavio ry ys yra ne tik labai glaudus, bet ir apimantis finansininteres . Skyrybos panaikina vyro ir moters vedybines pareigas, tod l nat ralu, jog kartu

nyksta ir draudimo interesas. Ta iau sutuoktinis gyja draudimo interes , susijus su jobuvusio sutuoktinio gyvybe, jei is turi pareig mok ti alimentus ar i laikyti vaikus.

Galima teigti, jog t ir vaik tarpusavio ry ys yra pats tvir iausias. T vai turipareig r pintis bei i laikyti savo nepilname ius vaikus, tod l ma ametis visada turitiesiogin finansin interes , susijus su t gyvybi t stinumu. T vai ne visada turifinansin interes , susijus su vaiko gyvybe. Ta iau, atsi velgiant gyvyb s draudimotiksl (mirties sukelt finansini problem palengvinim ), bei tai, jog draudimointeresas, kaip apsauga, turi b ti pripa intas egzistuojan iu remiantis objektyviaiskriterijais, t vai turi teis savo naudai apdrausti nepilname io vaiko gyvyb tik tuo atveju,


jei egzistuoja finansinis interesas, susij s su min to vaiko gyvyb s t stinumu. T vai ir jsuaug vaikai nepripa stami turintys tok draudimo interes , kuris vienam j suteiktteis apdrausti kito gyvyb savo naudai, nebent j tarpusavio santykiai b pagr stifinansine priklausomybe.

Broli , seser bei kitiems giminyst s ry iams taikoma ta pati taisykl : tiktiesioginis finansinis interesas, susij s su apdraustojo gyvyb s t stinumu, gali b tipripa intas tokiu draudimo interesu, kuris suteikt teis apdrausti to asmens gyvyb savonaudai.

Lietuvos teis s akt , reglamentuojan gyvyb s draudim , analiz atskleid ianema ai sprag . Teis s akt netikslum patvirtina nesuderinta draudimo kompanijveikla. Kyla aib klausim , neturin vienareik mio, tikslaus atsakymo.

Gana didelis pasiekimas yra Lietuvos Draudimo Sutarties statymo projektas,parengtas Valstybin s Draudimo Prie ros Tarnybos. iame projekte pirm kartLietuvos draudimo istorijoje apibr ta draudimo intereso s voka. Be to, pripa inta, jogdraudimo interesas turi b ti toks, kur galima vertinti pinigais. Ta iau yra numatyta, kadis reikalavimas nebus taikomas gyvyb s draudimo sutartims.

B tent d l prie as patartina patobulinti Lietuvos teis s aktus draudimosrityje bei atsi velgti ilgamet JAV praktik , nes tik ai s ir i sam s teis s aktai gali

ti tinkamai taikomi.

is a family relationship alone enough to … 3.pdf · insurable interest in life insurance context...

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