Life Assurance Act 1774

The Life Assurance Act 1774 (14 Geo. 3 c.48, also known as the Gambling Act 1774[1][2]) was an Act of Parliament of the Parliament of Great Britain, which received the Royal Assent on 20 April 1774.[3] The Act prevented the abuse of the life insurance system to evade gambling laws. It was extended to Ireland by the Life Insurance (Ireland) Act 1866, and is still in force. Prior to the Act, it was legally possible for any person to take out life insurance on any other person, regardless of whether or not the beneficiary of the policy had any legitimate interest in the person whose life was insured. As such, the system of life insurance provided a legal loophole for a form of gambling: an insurance policy could be taken out on an unrelated third party, stipulating whether or not they would die before a set date, and relying on chance to determine if the "insurer" or "policy-holder" would profit by this event.

Provisions

The Act was relatively short, with only four sections:

  • Section 1 sought to deal with these abuses by stipulating that henceforth no assurance was to be made on the life of any person or persons, or on any other event, where the person for whose use the policy was made had "no interest" in the matter, or if it were clearly done for the intent of "gaming or wagering", and that any assurance made contrary to this requirement was deemed null and void.
  • To aid in preventing this, section 2 required that any such policy include the names of the persons who stood to benefit by it.
  • Section 3 stipulated that, in all cases where the insured party had a legitimate interest in the life or event, they did not recover more than the value of their interest from the policy, guarding against the related abuse of deliberate overinsuring.
  • For the avoidance of doubt, section 4 stated that the Act did not extend to legitimate insurances of ships, goods or merchandise. Gaming or wagering in relation to British ships and merchandise was already prohibited by the Marine Insurance Act 1745.

Sections 2 and 3 were amended by the Statute Law Revision Act 1888, and the requirement in section 2 to name the beneficiaries of a life insurance policy was relaxed by section 50 of the Insurance Companies Amendment Act 1972, to allow insurance by reference to a defined class or description of person. The defendant in the important contract law case of Carlill v. Carbolic Smoke Ball Company (1898) had attempted unsuccessfully to rely on this section to avoid paying £100 to the plaintiff.[4]

Effects

The Act did not define what an "insurable interest" was, and it has since been held as the definite expectation of suffering a financial loss directly due to someone's death. It is generally accepted that a person has an insurable interest in the life of someone financially supporting them - for example, in the life of their parent whilst they are still a juvenile - but that this interest can cease if the situation changes. In a 1904 case, it was held that a man insuring the life of his elderly mother in order to pay funeral expenses, where he did not otherwise have a financial interest, was void.[5] However, note that as long as an insurable interest existed at the time the policy was created, it remains valid even if the interest later ceases.[6]

A person is considered to have an unlimited interest in their own life[7] or in that of their spouse, a case the law considers broadly equivalent; even if not financially dependent on the other, it is legitimate to insure against their death.[8] This does not reliably extend to cohabiting couples, however: whilst many insurers will accept such policies, as they have not been tested in court they could potentially be invalidated. In recent years, there have been moves to pass clear statutory provisions in this regard, which have not yet borne fruit.[9] Similar treatment was recently extended to civil partners under section 253 of the Civil Partnership Act 2004.

The Act remains of importance for policies of life insurance, including investments that are packaged under the umbrella of life assurance, such as endowment policies used to pay off mortgages.[10]

References
  1. Halsbury's Laws, vol.44(1) (reissue), "Statutes", para 1268.
  2. Long title: An Act for regulating Insurances upon Lives, and for prohibiting all such Insurances except in cases where the Persons insuring shall have an Interest in the Life or Death of the Persons insured; short title given by the Short Titles Act 1896.
  3. Annual Register for the year 1774, p.212-3
  4. Carlill v. Carbolic Smoke Ball Company [1893] 1 QB 256
  5. Harse v. Pearl Life Assurance Co Ltd [1904] 1 KB 558
  6. Insurances Archived 2006-10-23 at the Wayback Machine, Fraser Brown solicitors.
  7. Griffiths v. Fleming [1909] 1 KB 805; M'Farlane v. Royal London Friendly Society (1886) 2 TLR 755.
  8. Griffiths v. Fleming [1909] 1 KB 805; Married Women's Property Act 1882, section 11.
  9. Report on Family Law; Cohabitation, s. XVI Archived 2007-09-27 at the Wayback Machine, Scottish Law Commission.
  10. For example, the investor was only able to recover part of his money as a result of the limit in section 3 of the Act in the case of Fuji Finance Inc v. Aetna Life Insurance Co Ltd [1997] Ch 173, [1996] 4 All ER 608.
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