1 DAGNE DAUKANTAITE Vytautas Magnus University, School of Law IS A FAMILY RELATIONSHIP ALONE ENOUGH TO CREATE AN INSURABLE INTEREST IN THE LIFE OF THE OTHER? Contents Introduction Life Insurance in General Insurable Interest in Life Insurance Context Public Policy Considerations, where the Purposes of the Insurable Interest Doctrine are Rooted Different Types of Family Relations in Connection to the Insurable Interest Requirement Concepts and Definitions in General Husband-wife Relationship Parent-child Relationship Sibling Relationship Other Types of Family Relations Insurance Law of the Republic of Lithuania Conclusions Abstract in Lithuanian DAGN DAUKANTAIT. Address: Vytautas Magnus University, School of Law, Daukanto 28, Kaunas 3000 Lithuania.
2 Dagn Daukantait Is a family relationship alone enough to create an insurable interest in the 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 the chance of loss is an inseparable part of human existence. Although we seek security, it always seems beyond our reach. Risk cannot be avoided completely because without risk the future development would be impossible, life would be less comfortable, less exciting for we would not have automobiles, planes, boats and many other things helping us dayto-day. Since risk is a part of our life we must develop means to deal with it. Experience indicates that we live in a world that can be both hard and cruel. Risk management is a rational attempt to reduce or avoid the consequences of loss or injury. We live in an unsafe world, and we must face the possibilities of sickness, injury, death, financial loss or other unfortunate events that can occur. Insurance is the best way to deal with that uncertainty, fear and to achieve the feeling of security. This article will cover only life insurance, the beneficiary being a family member, and will not touch upon other forms of insurance. The analysis of this problem mainly will be focused on the American (USA) law system, because here the distinction between the laws of different states and different court decisions is extremely sharp. Those contrary views seem to be well grounded, reasoned, and having plenty of supporting arguments. Such opposite views on the same subject show that some judges have different perceptions of the person. There is a natural belief that all human beings have strong morals, and that natural love and affection always prevail against other feelings, financial needs or selfishness. It is not a bad idea to trust people so much. However, the other view should also be taken into account, namely, the view expressed by John Rawls, that a rationally thinking person is always selfish. 1 There is an eternal intrinsic fight in every human being, a fight between morals and personal needs. A person may act one way or another depending upon the value he attaches to these two choices. Accordingly, the choice made leads to two different extremes. One is the optimistic view that a person will always choose to act in accordance with morals. The pessimistic view is that personal needs will always prevail over the moral considerations. Sometimes a court s decision seems to be reached by reliance on one of these approaches. The best solution would be to take the middle approach. We cannot believe unconditionally that all people possess the same strong moral considerations, which make them 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, the middle approach would be to trust people because otherwise it would be impossible to live in the community, but not to trust them unconditionally. Due regard must be paid to all 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 insurable interest requirement in the family context. The first part of this article will define the concept, purposes and functions of life insurance and distinguish it from other forms of insurance. The second part will cover the insurable interest doctrine and the ways of fulfilling this requirement. The following part will explain the purpose of the insurable interest requirement, which is grounded in public policy. The fourth part of this article will analyze the scope of insurable interest in the 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).
3 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 will view insurance law of the Republic of Lithuania. Significance of this article: Lithuanian insurance law, being a relatively young branch, needs supplement with some explanatory provisions, and USA experience in this field can stand as an example for the Lithuanian legislature. The purpose of this article is to evaluate and analyze the insurable interest requirement as between family members, and to affirm or negate the following hypothesis: a family relationship standing alone is not enough to create an insurable interest in the life of the other, e.g. some form of pecuniary interest in the continuance of the insured s life is needed. 1. Life Insurance in General There are different types of insurance contracts. Likewise, there are different definitions of insurance. Insurance can be defined either broadly or narrowly, depending on the type of insurance. Broadly defined, insurance is a contract by which one party, for a compensation called the premium, assumes particular risks of the other party and promises to pay to him or his nominee a certain sum of money on a specified contingency. 2 The most popular definition of life insurance is narrow: "a contract to make specific payments upon the death of the person whose life is insured." 3 Life insurance policies 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 is the subject of the policy" 4. The other characters involved - the insurer, the owner of the policy 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 a mere contract of indemnity, but is a contract to pay the beneficiary a certain sum of money upon the event of death". 5 So it is a form of investment. 6 Secondly, the requirement of insurable interest seems to be more stringent than in other types of insurance 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 on every policy" 8. The fourth important distinction is that life insurance policies can provide only dollars at the time of death, 9 but human life cannot be estimated like this. Human values 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 Id Am Jur 2d, Insurance, 3. 6 See note 3: John F. Dobbyn. p Am Jur 2d, Insurance, Numan A. Williams, Insurance: An Introduction to Personal Risk Management (Cincinnati, Ohio: South- Western Publishing Company, 1984), p Id. 10 Id. 11 Id., p. 147.
4 Dagn Daukantait Is a family relationship alone enough to create an insurable interest in the life of the other? 37 loss when economic death occurs" 12. Knowing that death is a certainty and taking into account the fact that life insurance cannot restore life, a logical inference can be drawn that 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 the premature death" 13. In other words, while life insurance is worthless to preclude the emotional suffering of a deceased s family, it minimizes the economic loss and helps to avoid some costs associated with death. As it has been mentioned earlier, the insurable interest requirement is a common feature to all forms of insurance contracts. However, it has a specific application in relation to life insurance. This point has to be analyzed in order to proceed with this discussion. 2. Insurable Interest in Life Insurance Context Historically, the doctrine of insurable interest, while being the creation of common law country, evolved in England, not in America. The Parliament enacted two statutes - George II and George III - for regulation of property insurance and life insurance respectively. 14 Both statutes require showing an insurable interest in the subject matter insured before any contract of insurance can be entered into. 15 When analyzing the wording of these two statutes, it seems that the purpose of enactment was to secure the insurers against fraudulent claims. Anyway, for the purposes of this article it is worth to notice that the Parliament transformed the principle of insurable interest into a rule of law, 16 and consequently English courts enforced this rule. 17 American legislature and judiciary branches also adopted it. 18 Nowadays, an insurable interest appears to be required in every state in the USA. 19 An insurable interest is necessary to the validity of an insurance contract. 20 "[I]f no insurable interest exists, the contract is void" 21. It is not easy to define the concept and extent of insurable interest with precision because the definition varies with every kind of insurance contract. In general, "whatever furnishes a reasonable expectation of a pecuniary benefit from a continued existence of a subject of insurance is a valid insurable interest." 22 However, such a definition seems to be too narrow and imprecise to be applicable correctly to all the kinds of insurance contracts. As it was mentioned above, life insurance is inherently distinctive from other types of insurance. The early English statutes recognized that distinction by separating property and life insurance. Today the authorities in essence agree that "a distinction must be made between property insurance and life insurance in determining the question of what 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 J. J. Launie, George E. Rejda, Donald R. Oakes, Personal Insurance (Pennsylvania: Insurance Institute of America, Inc., 1987), p See note 3: John F. Dobbyn. p Id. 16 Id. 17 Id., p Id., p ALR 3d This aspect will be considered in the following part of this article Am Jur 2d, Insurance, Id. 23 Id.
5 International Journal of Baltic Law Volume 1 No. 2 (February, 2004) 38 insurable interest and the time when it must exist are treated subsequently in relation to the specific kind of insurance involved." 24 Property insurance will not be analyzed further leaving an insurable interest in relation to life insurance the only object of analysis. Also there is another important division related to life insurance, which is necessary to consider because it affects the insurable interest requirement. "For the purposes of the insurable interest doctrine, life insurance is divided into two distinct groups - insurance taken out on one s own life and insurance taken out on the life of another." 25 The first group, the insurance taken out on one s own life, is less problematic. It is also not very important for this analysis. Thus, only the most general aspects will be discussed in order to show that here the insurable interest requirement cannot be ignored either. "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 the proceeds payable to anyone he wishes. 27 It follows that a beneficiary does not need to have an insurable interest to be named in a policy of life insurance. However, there is an important limitation to the above statement - a statute prohibiting life insurance in favor of 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 a beneficiary 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 in order "to avoid difficulties that can arise; for instance, this occurs when a person names a fiancée 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 a statute limiting the right to take out insurance on own life and designate a beneficiary having no insurable interest, or in the absence of a restrictive insurance company s policy, one cannot be sure that a life insurance policy in question will not be invalidated by a court. The courts will declare a policy invalid where the transaction is for the purpose 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 an insurable interest in the life of the insured is strict. Still, the question of what constitutes the necessary insurable interest arises immediately. An insurable interest in relation to life insurance is defined in the Insurance Codes of every state. For example, Alabama Insurance Code 316 provides as follows: Insurable interest with reference to personal insurance is an interest based upon a reasonable expectation of pecuniary advantage through the continued life, health or bodily safety of another person and consequent loss by reason of his death or disability, or a substantial 24 Id. 25 See note 3: John F. Dobbyn. p Am Jur 2d, Insurance, See note 12: William H. Cummings. p Am Jur 2d, Insurance, Id. 30 See note 12: William H. Cummings. p Id Am Jur 2d, Insurance, 974.
6 Dagn Daukantait Is a family relationship alone enough to create an insurable interest in the life of the other? 39 interest engendered by love and affection in the case of individuals closely related by blood or by law. 33 Such definition encompasses different types of relations, which can give rise to the insurable interest in the life of another person. This definition seems to be divided into two parts. The first part covers relations, which are based upon expectancy of some sort of 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 and affection prevailing between them. In this article the attention will be focused on the second of these two categories, namely, family relations. The authorities are split on the question of what constitutes the requisite interest of one person in the life of another. 34 An inference can be drawn that the reason for this disagreement is rooted in the complexity and broadness of the above definition. It gives a broad 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 is devoid of insurable interest, rendering that insurance to be contrary to public policy. This result leads to important consequences Public Policy Considerations, where the Purposes of the Insurable Interest Doctrine are Rooted The traditional definition calls insurance "a social device for the transference of individual risk to an insurance company, which, for a certain consideration, assumes losses 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 protect the insured against the possibility that another person could financially benefit from the insured s death. 38 Public policy considerations are remembered every time when any of these 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 an insurance contract. It means that an absence of an insurable interest renders the policy unenforceable, illegal and void. The purposes of the insurable interest doctrine are rooted in public policy. 39 Those purposes are prevention of wagering and removal of the temptation to deliberately hasten the death of insured in order to receive the insurance proceeds. 40 A wager policy is a pretended insurance where no loss can be sustained in case the event insured against happens because of absence of an insurable interest. 41 It is generally agreed that such policies, in which the only interest is the destruction of the matter insured, are void as being contrary to public policy. 42 Some states have statutes prohibiting wager policies, and if no statute has been enacted, such policies are being invalidated 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) Am Jur 2d, Insurance, See the following part of this article. 36 See note 12: William H. Cummings. p Id., p Id. 39 See note 3: John F. Dobbyn. p Id., p Am Jur 2d, Insurance, ALR3d Am Jur 2d, Insurance, 939.
7 International Journal of Baltic Law Volume 1 No. 2 (February, 2004) 40 lack of insurable interest can give rise to the intention of a beneficiary to hasten the death of the insured person. Basically, the same public policy purposes are pursued by requiring to have a consent of cestui que vie before trying to take out or issue a life insurance policy. It is a general rule that a life insurance policy procured without the knowledge and consent of the insured person is against the public policy and unenforceable. 44 As a result such a policy is likewise void ab initio. An inference can be drawn that insurance procured without the insured s knowledge and consent indicates that a beneficiary possesses no insurable interest in the life of the insured. No one can be permitted to obtain insurance on the life of another without his knowledge and consent, whatever the relationship between them is. 45 However, there is an exception, which entails a controversy. Some authorities express 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 of crime." 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 be given a chance to participate in a decision making which concerns one s own life. Every person is a separate and independent entity, so if someone attempts to interfere with one s life, one s consent should be obtained. Secondly, one cannot ignore the cases, which support the above statement, namely, that a lack of consent can lead to a crime of murder. 48 So it can be said that the costs of allowing such exception in relation to spouses outweigh possible benefits, whatever they may be. Authorities seem to be in accord on the point that an exception to a requirement of consent applies to a parent insuring the life of a child. 49 "It is not against public policy for a minor to contract for insurance", 50 but a parent may insure an infant s life without one s consent. 51 It is worth to notice that a beneficiary who intentionally takes the life of cestui que vie is prevented by the courts from receiving insurance proceeds. 52 This principle is based on considerations of public policy. 53 The courts accept and widely apply the principle that no one should be able to benefit from his own wrong. 54 For example, the court 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." Such beneficiary is also precluded from inheriting the insurance proceeds. 56 A few states have statutes enacted for the purpose of dealing with such situations. 57 The consequences of issuing life insurance in the absence of any of the safeguards described above involve the insurer too. Tort liability can arise if a beneficiary 44 Id., See note 3: John F. Dobbyn. p Id Am Jur 2d, Insurance, 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 Am Jur 2d, Insurance, Id., See note 3: John F. Dobbyn. p ALR3d Am Jur 2d, Insurance, Beck v. West Coast Life Insurance Company, 38 Cal. 2d 643, 241 P.2d 544 (1952) ALR3d Am Jur 2d, Insurance, 1715.
8 Dagn Daukantait Is a family relationship alone enough to create an insurable interest in the life of the other? 41 attempts or actually murders the insured in order to receive the insurance proceeds. 58 That liability arises because the insurer has a duty to investigate with reasonable care whether a beneficiary has an insurable interest in the continued life of the insured. 59 Insurer can also be held liable in negligence for issuing a life insurance policy without first obtaining the signed consent from the insured. 60 Also the potential liability of an insurer is not eliminated by the fact that such policy is void ab initio. 61 In sum, those two simple safeguards discussed above have substantially reduced the 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 the motivation for murder and fraud Different Types of Family Relations in Connection to the Insurable Interest Requirement 4.1. Concepts and Definitions in General In this article the term "family" will mean not only the immediate family. It will mean "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 and wife and their children." 65 As it has been mentioned above, the authorities disagree on the question of what constitutes a required insurable interest of one person in the life of another. The same applies to the family members insuring the life of each other. Cases dealing with this issue are divided into two groups. The first one declares that a close family relationship alone is enough to create an insurable interest in the life of the other 66. The second one, in addition, requires an insurable interest to be based on expectancy of some pecuniary benefit or advantage from the continued life of the insured person 67. Both these views will be analyzed in a discussion below. The definition of the insurable interest formulated in Warnock v. Davis 68, is generally accepted and often quoted by the courts of justice: [I]n all cases there must be a reasonable ground, founded upon the relations of the parties to each other, either pecuniary or of blood or affinity, to expect some benefit or advantage from the continuance of the life of the assured. As to the expectation of benefit or advantage from the continued life of the insured the Court further opined that "[i]t is not necessary [for it to be] always capable of pecuniary estimation." 69 The above definition seems to be more in accord with the first view as it declares that an insurable interest may arise out of relations by blood or affinity alone. However, it is not quite clear how close that relationship should be. It can only be 58 See note 3: John F. Dobbyn. p 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 See note 12: William H. Cummings. p Id. 64 Bryan A. Garner, et. al. eds., Blacks Law Dictionary, Seventh Edition (Minnesota: West Group, 1999), p Hosmer v. Welch, 107 Mitch. 470, 65 N.W. 280 (1895) Am Jur 2d, Insurance, Id. 68 Warnock v. Davis, 104 U.S. 775, 26 L. Ed. 924 (1881). 69 Id.
9 International Journal of Baltic Law Volume 1 No. 2 (February, 2004) 42 said that "the closer the relationship is, the more likely will an insurable interest be found to exist." 70 The cases reveal that the relationship of a husband and a wife has been held to be sufficiently close to create an insurable interest. 71 The relationship of a parent and a child has been given the same status 72. Other types of family relationships have been held to be insufficient to create an insurable interest when standing alone. 73 The relationship between siblings stands somewhere on the dividing line 74. However, there is authority to the contrary, namely, that an insurable interest in the life of another is a pecuniary interest 75. This rule seems to be derived from the early English statute George III. 76 Pecuniary interest, in other words, economic interest, means money. Money should not be understood only as the exact sum of dollars. It can have lots of different forms, for example, food, clothing, education, daily support, or different services provided without the payment thereof, and so on. It seems that a pecuniary benefit could mean not only money actually received, but also the expenses saved. The court in Rombach v. Piedmont & Arlington Life Insurance Company 77 said that "when the insurable interest arises, or is implied from relationship, it will be deemed to exist when the relationship is such that the legal claim [arises]" upon the insured for services or support. Other say that a "pecuniary interest is tested by the factual expectancy rather than legal interest test." 78 Anyway, the authorities seem to agree that a pecuniary benefit is something of value, which is already being received or is reasonably expected to be received in the future. The court in Morrell v. Trenton, etc., Insurance Company 79 while commenting upon the language of Warnock v. Davis 80 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 moral gratification." This court explained the words 'benefit or advantage from the continuance of the life' to mean material or physical benefit or advantage. 81 Further analysis will try to answer what test should be applied to different types of family relations in order to fulfill the insurable interest requirement and remain in conformity with the public policy considerations, e.g. a close relationship test or an expected pecuniary benefit test Husband-wife Relationship It is universally accepted that a wife has insurable interest in the life of her husband and vice versa, without more. 82 Some states enacted statutes "permitting married women to insure their husbands lives." 83 Although the spouses are related by law, as opposed to relation by blood, the above cited authorities seem to believe that the natural ALR3d 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) ALR3d See note 75: Rombach v. Piedmont & Arlington Life Insurance Company. 78 See note 3: John F. Dobbyn. p 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 Am Jur 2d, Insurance, 978.
10 Dagn Daukantait Is a family relationship alone enough to create an insurable interest in the life of the other? 43 love and affection prevailing between them is just as strong as that between persons related by blood. This belief may be rooted in common law. "At common law, husband and wife become by marriage one person" with a legal existence of a wife absolutely merged in that of her husband. 84 The result of this common law unity is "complete disability [of a married woman] to act as a legal person." 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 Married Women s Acts, which is in force in almost all the states now. 87 This means that a wife has a right to contract in her name, on her behalf and independently of her husband as they are considered as separate legal persons. However, "[t]he law continues to recognize [the legal unity of the spouses] with respect to certain rights, duties, and obligations arising from the marriage". 88 Among other duties, a husband, who is the head of the family, 89 is under obligation to maintain and support his wife. 90 A wife, in her turn, is under obligation to care for her husband in sickness, to be his helpmate, to perform her household and domestic duties without compensation therefor. 91 These legal obligations and rights of spouses give rise to the expectancy 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 very close one, has a pecuniary element in it too. From this point of view there is no need to decide which one of the tests discussed above should be used, because the insurable interest in the life of the spouse can be predicated upon both, the close relationship and the expectancy of some pecuniary benefit from the continued life of the spouse. Some authorities propose that the amount of life insurance policy of a husband and a wife should be based on their earning capacity. If spouses earn equal amounts, they should have equal amounts of life insurance, when one of them earns more, that spouse should carry more life insurance 92. This statement seems to be a reasonable one as it is in conformity with the purpose of life insurance, e.g. the protection against the financial consequences of death. 93 This proposal is likewise based on the economic interest test. Some sources 94 conclude that a wife has an insurable interest in the life of her husband. This conclusion is based on the argument that "she is financially better off if her husband 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 the continued life of the insured spouse. The cited authorities seem to treat a wife as dependent on her husband for support. The court s conclusion in the Gambs case 95 is that a wife has a direct interest in the life of her husband. "The law requires him to support her, and in most cases she is actually dependent upon him for support." This conclusion seems to have its basis in the Am Jur 2d, Husband and Wife, Id., See id., 137 for the exceptions. 87 Id., Id., Id., Id., Id., See note 8: Numan A. Williams. p See the first part of this article. 94 See note 12: William H. Cummings. p Henry Gambs, Public Administrator in charge of Estate of Amanda Holliday v. Covenant Mutual Life Insurance Company, 50 Mo. 44 (1872).
11 International Journal of Baltic Law Volume 1 No. 2 (February, 2004) 44 common law. The court expressly accepts the rule that the insurable interest in the life of the other must be a "direct and definite pecuniary interest", and declares that "a person has not such an interest in the life of his wife or child, merely in the character of husband or parent." This decision clearly rejects the view that the husband can have an insurable interest in the life of his wife only because of the relationship of spouses. However, a wife has an insurable interest in the life of her husband because she has "a right to look to the husband for support", which constitutes an expectancy of a pecuniary benefit. The Gambs case is rather exceptional. The weight of authority recognizes both spouses to have a reasonable expectancy of pecuniary benefit from the continued life of the other as a result of their interdependence, which arises out of their mutual legal obligations. 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 her husband ceases." 96 However, this affects only her right to procure insurance on his life after the divorce, but not necessarily terminates "the right to receive the proceeds by the 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 of a husband and a wife is terminated together with the marital rights and obligations of the spouses. In such situation the test of reasonable expectancy of pecuniary benefit should be 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 pay his 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 interest in the life of the other. However, proof of a financial interest is required when a person wishes to procure a policy of insurance on his former spouse s life Parent-child Relationship Presumably, the parent-child relationship, arising from ties of blood, is the strongest one of all. "[N]o relationship is more sacred or more binding than that of parent and child." 99 These ties uniting a parent and a child are the main reason why some courts conclude that this type of relationship is enough to give an insurable interest in the life of the other, and no additional element is required. It has been held that a child has an insurable interest in the life of his parent, 100 and a parent has an insurable interest in the life of his child. 101 However, this is not a universal rule. There is some authority holding that this type of relationship is not sufficient, and requiring some pecuniary interest in addition to it. 102 Some courts accord insurable interest unconditionally to a relationship of a parent and a minor child. 103 It is obvious that a minor is totally dependent upon his parents 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, Am Jur 2d, Insurance, ALR3d Am Jur 2d, Insurance, 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) Am Jur 2d, Insurance, See note 3: John F. Dobbyn. p. 96.
12 Dagn Daukantait Is a family relationship alone enough to create an insurable interest in the life of the other? 45 partly because children can be left without proper financial support." 104 It is considered that a minor always has a direct pecuniary interest in the continued lives of his parents in addition to a very close relationship. Moreover, a reference to the legal parental duty to provide support and maintenance to their children supports this finding. The same cannot be said about a parent. He may have no economic interest in the life of his minor child. Such a parent does not have an insurable interest in the life of his child in jurisdictions, which follow the rule that some pecuniary interest is essential and that a relationship in question is not enough. "Even in such jurisdictions, however, a father 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 child seems to be reasonable in the light of Crawford case 106. In that case the father procured the policies on the lives of his three minor children with the intention of killing them in order to collect the proceeds. Of course, such disaster will not occur every time when a parent purchases a policy on his child s life, while having no pecuniary interest therein. It should 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 for the 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 suffer some loss from his death, it may be observed that some beneficiaries with a valid interest in the insured s life still consider the insurance proceeds more valuable than the insured s continued life. 107 That is why insurable interest should be tested relying on more objective criteria than love and affection, which is totally subjective in its nature. Another thing to remember is the purpose of life insurance, e.g. protection against the financial consequences of death. Though the death of a child is tragic, it does not bring major economic losses along with it. A different situation arises in the parent-adult child relationship. The courts seem to be more reluctant to recognize any of them as having an insurable interest in the life of the other based on the relationship alone. This can be explained by the fact that an adult child is usually no longer dependent upon his parents. He leaves his parents home and creates his own family. However, some courts conclude that this relationship is in itself sufficient to give an insurable interest in the life of the other, and no other element is required. For example, the court in Woods case 108, while reaching the above conclusion, speaks mostly of "the duties due from children to their parents", which "arise from the principle of natural justice and retribution". Nevertheless, this language contains a reference to a pecuniary element because an obligation or duty owed by one person to another creates an 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 adult children, but not vice versa. The approach that a pecuniary interest is required to sustain the validity of a life insurance contract and that a mere relationship of a parent and an adult child is not sufficient seems to have greater support in case law. The court in Volger case 109, while 104 See note 8: Numan A. Williams. p Am Jur 2d, Insurance, West Coast Life Insurance Company v. Crawford, 58 Cal. App 2d 771, 138 P2d 384 (1943) ALR3d See note 72: Woods, &c., v. Woods' Admr. 109 The Continental Life Insurance Company v. Volger, 89 Ind. 572 (1883).
13 International Journal of Baltic Law Volume 1 No. 2 (February, 2004) 46 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 of whose 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 the approach "that near relationship, as between parent and child, is sufficient foundation upon which to rest an insurable interest" by saying that it "is not sustained by the weight of authority." Justice Black employed a very similar reasoning in The Prudential Insurance Company v. Hunn 110, concluding that a mother has no insurable interest in the life of her son. The opinion of the court contains the following language: "[t]he beneficiary must have had an insurable interest of a pecuniary character, or of that nature, either present or prospective, at the time the policy had its inception." The judge, as distinguished from the Woods case, declared that there is no legal obligation on the part of the children to support their parents, so the court cannot infer from the fact of relationship alone such insurable interest, which would uphold a policy. There are cases where a policy was procured without the consent of the insured parent. 111 This immediately indicates lack of insurable interest and leads to a conclusion that there is a pecuniary interest, but it is against the continuance of the insured s life. The Hogan case 112 is important and often cited by courts. Here the court stated that the mere relation of father and son, where both parties are of mature years, and live apart, in independent pecuniary circumstances, and mutually entirely independent of each other, and having no business relations with each other, does not create an insurable interest in the son on the life of the father. The above statement clearly indicates that this court accepts the view, which requires a finding of an insurable interest based on the expectation of advantage which can be derived from the continued life of the insured. The opinion cites Mr. May s Treatise on the Law of Insurance, that the relationship is "of little importance except as tending to give rise to the circumstances which justify a well-founded expectation of pecuniary advantage from the continuance of the life insured, or risk of loss from its termination. " 113 Thus, with respect to insurance in parent-child context, it would be more objective to require the existence of an insurable interest based on the expectancy of some pecuniary benefit from the continued life of the insured, than insurable interest based on such subjective criteria as love and affection inherent in a parent-child relationship. This approach is sustained by the weight of authority. The only exception can be allowed with respect to a parent-minor child relationship because it contains a pecuniary element therein. That pecuniary element is derived from the legal obligation on the part of the parents to support their minor children and from the fact that a minor is totally 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.
14 Dagn Daukantait Is a family relationship alone enough to create an insurable interest in the life of the other? Sibling Relationship The degree of relationship within which an insurable interest exists is not clearly defined. 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 decisions are not in accord on the question whether one has, by reason of relationship alone, an insurable interest in the life of a brother or sister." 114 The case Lord v. Dall 115 is especially important. It was the case of first impression in the USA. The question raised in this case was whether a life insurance policy "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 practiced upon in this country." The court further noted that there was no precedent of an action upon 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 of Europe, except England; several of them having expressly forbidden them." The court cited the reason for that given in France, "that it is indecorous to set a price upon the life of man, and especially a freeman, which is above all the price", and criticized it as being 'singular'. This case is important because the American court accepted and applied the English insurable interest doctrine in relation to life insurance for the first time. This court accepted the rule that "the interest must be a pecuniary, legal interest, to make the contract valid; one that can be noticed and protected by the law". 116 The conclusion that a sister has an insurable interest in the life of her brother was reached in light of evidence showing that "the brother was her sole means of support and absent the policy, the brother s death would leave her in complete want." 117 Subsequently, a number of jurisdictions started to apply the rule that in order to constitute insurable interest there must be some expectation of pecuniary benefit from the continued life of the insured in addition to relationship of the parties. It is universally agreed that "the presence of an [additional] economic interest in having the life of the insured continue is a factor heavily favoring, if not determining, the validity of the policy." 118 The following examples clearly illustrate this rule. A sister has an insurable interest in the life of her brother who supports and educates her 119. A sibling, being a partial dependant of her brother, has an insurable interest in his life 120. A person has an insurable interest in the life of his brother when he is his creditor 121. Also, a man has an insurable interest in the life of his brother who is a business partner 122. This is true even in those jurisdictions which hold that "an insurable interest does not arise from the mere fact of the kinship shown, but must be a pecuniary one, and be disclosed by the facts alleged." 123 Distinction must be made between the policies taken out on one s own life and those procured on the life of the other because this affects the requirement of an insurable interest. While holding that the mere relationship between siblings is sufficient to create an insurable interest in the life of either of them, the authorities often cite cases where a Am Jur 2d, Insurance, Lord v. Dall, 12 Mass. 115 (1815). 116 Id. 117 Id ALR3d 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).
15 International Journal of Baltic Law Volume 1 No. 2 (February, 2004) 48 policy procured by the insured designates a sibling as a beneficiary. 124 This decision is based 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 the other. This article will ignore the decisions reached by mixing the cases with those two distinctive types of life insurance policies. Most courts dealing with cases where a policy is taken by a beneficiary on the life of the sibling seem to accept the view that a pecuniary interest in the life of the insured 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 is obvious that liberalization of rules is sometimes very helpful because it softens the requirements and simplifies procedures. However, this is not true when life insurance is at issue. It is a widely accepted truth that human life is the most valuable and precious thing on Earth. Thus, no liberalization should be allowed if it could lead to a slightest risk of losing this valuable Other Types of Family Relations The authorities universally agree that other types of family relations are not sufficient to create an insurable interest in the life of another. In addition "a factual expectancy of economic benefit is required" 128. A relationship between cousins is too remote to constitute an insurable interest in human life and health. 129 Also, it is generally agreed that in-law relations are not sufficient to confer an insurable interest on a beneficiary. 130 The same applies to relations between an uncle and a niece 131 ; an aunt and a nephew 132 ; a grandfather and a granddaughter 133. All decisions concerning these types of relations unanimously agree that an insurable interest in the life of the other must be tested by an expectancy of some pecuniary 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 have to comply with the European Community s (EC) laws and regulations. The same applies to insurance law as well. 124 For example, such cases are: Phillips Estate, 238 Pa. 423, 86 A. 289 (1912); Aetna Life Insurance 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 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).
16 Dagn Daukantait Is a family relationship alone enough to create an insurable interest in the life of the other? 49 The objective of the EC, e.g. "a single market for insurance" 134, was achieved by means of three generations of insurance directives 135. The first generation was concerned with the right of establishment, the second - with freedom to provide insurance by way of services, and the third converted these two basic principles into the single market. 136 The three Life Directives 137 left the regulation of insurance activity for competence of each member state. 138 Thus, this part will review insurance law of the Republic of Lithuania in order to answer what constitutes an insurable interest in the life insurance context. In Lithuania life insurance as a separate branch of insurance activity evolved only in 1996, when the statute on insurance 139 separating life and non-life insurance was enacted. 140 This was done in reliance upon the EC requirement that life and non-life insurance must be separated. 141 Western life insurance traditions make only first steps in Lithuania 142, and the necessary legal norms are only starting to emerge 143. The review of existing legal norms should start by noting that the Constitution of the Republic of Lithuania is silent about the insurance activity. 144 There is no insurance code in most West European countries, that is why critics say that insurance law is not a separate, self-dependent branch of law, but a mere civil law institute. 145 Lithuania is not an exception because the Civil Code 146 is the main legal source regulating insurance activities. 147 However, the Civil Code provides only the most general norms of insurance law and it can be applied only if other laws on insurance do not provide otherwise. 148 There is no provision in the Civil Code, which could give an answer to the question raised above. The Law on Insurance of the Republic of Lithuania, while complying with the EC requirement to separate life and non-life insurance 149 will be revised again in order to achieve membership in EC 150. This statute is not explicit enough and sometimes is silent about some aspects of insurance activity. Thus, it would be useful to supplement the statute with certain explanatory norms. This statute does not provide whether the insurable interest doctrine is accepted by 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 Wesley Longman, Inc., 1997), p Id., p Id. 137 First Council Directive 79/267/EEC Taking-up and pursuit of the business, 5 March Second Council Directive 90/619/EEC Provisions to facilitate effective exercise of freedom to provide services, 8 November Third Council Directive 92/96/EEC amending 79/267/EEC and 90/619/EEC, 10 December Rimantas Stankevi ius, "Lietuvos Draudimo Teis s altiniai", Teis (2002, t. 42), p Law on Insurance of the Republic of Lithuania ( , Nr.I-1456). 140 Dr. Vytautas Kindurys, "Gyvyb s Draudimas Lietuvoje", Lietuvos kis (2002, Nr.9-12), p J. epinskas, ir kt., Draudimas (Kaunas: Pasaulio Lietuvi Kult ros, Mokslo ir vietimo Centras, 1999), p Au ra Maldeikien, "Kod l Verta Drausti Gyvyb? Mokes inios (2002, Nr. 26(280), ). 143 See note 141: J. epinskas, p See note 138: Rimantas Stankevi ius, p Id., p Civil Code of the Republic of Lithuania ( , Nr.VIII-1864). 147 See note 138: Rimantas Stankevi ius, p See note 146: Civil Code of the Republic of Lithuania, Art Law on Insurance of the Republic of Lithuania, in. (2002, Nr ), Art See note 141: J. epinskas, p. 149.
17 International Journal of Baltic Law Volume 1 No. 2 (February, 2004) , 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. The article in question defines interests, which can be a subject matter of an insurance contract, and it has nothing to do with an insurable interest requirement. The characters, other than an insurer, involved in a life insurance contract are as follows. First, there is an insured who contracts with insurer. He must pay the premiums and is entitled to an insurance payment after an insured event occurs 153. Second, there is a covered person, e.g. cestui gue vie. The third one is a beneficiary. One person is specified in the insurance type regulations, not in the contract 154. The same person can be any or all of these characters. The Lithuanian insurance law recognizes that it is necessary to obtain a written consent of cestui gue vie on the appointment of the beneficiary. In practice, the covered person fills in and signs a questionnaire, and signs an application for insurance, in presence of an insurance agent. It is an achievement that this safeguard for the benefit of cestui gue vie was adopted by the Lithuanian legislature. However, the statute under discussion is silent about the purpose of this safeguard, e.g. the prevention of wagering on the length of human life. There is no statutory provision which would explain what happens to the insurance proceeds in case a beneficiary hastens the death of a cestui gue vie. Thus, it is not clear whether the proceeds should be included in the estate of the deceased or retained by an insurance company, and whether the said beneficiary being heir of the deceased can be allowed to inherit those insurance proceeds. These gaps should attract the attention of the Lithuanian legislature. The statute is not specific as to who can be a beneficiary of a life insurance contract. A beneficiary is defined as "a person specified in a contract of insurance at the wish of the insured or the person named by the covered person." 155 This provision is unclear as it does not specify what type of relationship must exist between a beneficiary and cestui gue vie, and this can lead to an inference that they can even be strangers to each other. Some insurers express a view that only family members can insure the lives of 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 can obtain an insurance policy on other s life. 157 However, they agree that the existing law does not give an answer to this question, and this situation leads to uncertainty and different practices by the insurers. The need for an explanatory statutory provision becomes obvious. An exceptional situation arises when a minor child is involved. A minor is not capable of contracting for life insurance, so his parents can do that instead of him. 158 The statute expressly forbids insuring the life of a minor for the benefit of any person other than a minor himself. 159 However, it is not clear who has a right to insurance proceeds in case of minor s death. Some insurers solve this problem by designating a contingent beneficiary 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 Id. Art Id. 155 Id. 156 Romualda Brasien, conversation with the authoress, Kaunas, Karolis Vinci nas, communication with the authoress on the phone, See note 141: J. epinskas, p See note 149: Law on Insurance of the Republic of Lithuania, Art See note 157: Karolis Vinci nas.
18 Dagn Daukantait Is a family relationship alone enough to create an insurable interest in the life of the other? 51 to include an insurance benefit in the estate of the deceased child. 161 Thus, we are faced with a lack of express statutory provision here as well. It is also important that the Lithuanian insurance law, as a relatively young branch of law, has no case law relevant to this article. Thus, it is not possible to have recourse 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 of Lithuania, 162 which introduces an insurable interest requirement into Lithuanian insurance law. The concept of an insurable interest is defined there as "a loss sustainable by an insured or a covered person in case the event insured against occurs". 163 The project further provides that "it is an indispensable condition for a damage insurance contract that an insured or a covered person has a valid insurable interest, capable of pecuniary estimation" 164. Otherwise, the contract is void. 165 Thus, Lithuania recognizes the need of an insurable interest requirement. Moreover, it accepts the rule that an insurable interest in the subject matter insured should be a pecuniary interest in the preservation of an insurance object. However, the definition of the damage insurance contracts encompasses property insurance, civil liability insurance and health insurance, leaving life insurance outside 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 the damages sustained. 167 The articles concerning an insurable interest requirement are not intended to apply to life insurance contracts. This is not a good idea. First, the subject matter of life insurance has a greater value than that of other forms of insurance. It should be afforded the same or even greater protection. Second, an inclusion of life insurance into a definition cited above would solve a relevant issue of who can be a beneficiary of a life insurance policy. Thus, a person having a pecuniary interest in the continued life of the covered person could be appointed as a beneficiary. In sum, the analysis of the Lithuanian insurance law yields a need to supplement existing legal norms with new explanatory provisions and fill the gaps regarding the issues 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 it into the Lithuanian legal system. The analysis of a settled and comprehensive American insurance law can stand as a recommendation to the Lithuanian legislature of a way to improve Lithuanian insurance law. In order to have a properly applied law, it should be clear to insurance companies, which face it in their day-to-day business, and also to the potential life insurance consumers. 161 See note 156: Romualda Brasien. 162 Law on Insurance Contract, National Insurance Supervisory Board, project (2003). 163 Id. Art Id. Art Id. Art Id. Art Id.
19 International Journal of Baltic Law Volume 1 No. 2 (February, 2004) 52 Conclusions It is widely recognized that insurance is necessary for the economic development of 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 and comprehensive, thus it could stand as an example to Lithuania that is making only first steps in this branch of law. In the USA the need for life insurance is widely recognized as it helps to alleviate financial consequences of death. An insurable interest, which is necessary to the validity of an insurance contract, is required in every state in the USA. An insurable interest and consent are two important safeguards for the benefit of the insured, the purposes of which are rooted in public policy. Those purposes are prevention of wagering and removal of the temptation to deliberately hasten the death of the insured in order to receive the insurance proceeds. A life insurance policy procured in a way that impairs any of those two safeguards is invalidated on the public policy grounds. Issue of such policy has important consequences for the insurer, too, because tort liability can arise if a beneficiary attempts or actually murders the insured in order to receive the insurance proceeds. Authorities disagree on issue what constitutes a required insurable interest in a family context. There are two different views. First one states that a close relationship alone is enough to create an insurable interest in the life of the other. The second view suggests that some sort of additional pecuniary interest in the continued life of the insured is necessary to the validity of an insurance contract. This article supports the second approach. An insurable interest as a safeguard should be tested by more objective criteria than natural love and affection inherent in a family relationship, which is totally subjective 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, which lead 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 reasonable expectancy of a pecuniary benefit, such as alimony or husband s duty to support the children, 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 direct pecuniary interest in the continued lives of his parents. A reference to the legal parental duty to support their children leads to this finding. The same cannot be said about a parent. The purpose of life insurance and the fact that an insurable interest should be tested by objective criteria support a requirement that a parent has a pecuniary interest in the life of his minor child. A parent and an adult child have no insurable interest in the life of each other, unless one is somehow dependent upon the other. Cases concerned with a sibling relationship accord an insurable interest to one who has a pecuniary interest in the life of the insured. There are few cases holding that a sibling 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 on one s own life and those procured on the life of the other, and were reached relying on a general rule that everyone has an insurable interest in his own life. Thus, they are out of the scope of this article. With respect to other family relations, an insurable interest must be tested by a reasonable expectancy of some pecuniary benefit to be derived from the continued life of the insured person.
20 Dagn Daukantait Is a family relationship alone enough to create an insurable interest in the life of the other? 53 This article reveals that a family relationship alone does not create an insurable interest in the life of the other, and that an expectancy of a pecuniary benefit to be derived from 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 wonder that the analysis of Lithuanian insurance law yields a need to supplement the existing legal norms with new explanatory provisions and fill the gaps. A great achievement is a project of Law on Insurance Contract, which illustrates the first attempt to define an insurable interest requirement and introduce it to the Lithuanian legal system. Lithuania accepts the rule that an insurable interest in the subject matter insured should be a pecuniary interest. However, the articles concerning an insurable interest requirement are not intended to apply to life insurance contracts. The analysis of a settled and comprehensive American insurance law may stand as a recommendation to the Lithuanian legislature like a way to improve Lithuanian insurance law. In order to have a properly applied law, it should be clear to insurance companies, which face it in their day-to-day business, and also to the potential life insurance consumers.
Insurance Intermediaries Quality Assurance Scheme Principles and Practice of Insurance Examination Study Notes 2013 Edition PREFACE These Study Notes have been prepared to correspond with the various Chapters
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