Question

Ashok is the owner of a factory and has taken a fire policy for his factory. He sells his factory to Rakesh but does not transfer the insurance policy. After some days, the factory is destroyed by fire. Can Ashok or Rakesh recover the loss from the insurance company? Which principle of insurance will be applicable in this situation and why?

Hint:

Insurable interest must exist at the time of claim — no insurable interest, no valid claim.

Answer 1

In this case, Ashok originally had an insurable interest in the factory when he took the fire insurance policy.
However, when Ashok sold the factory to Rakesh, his insurable interest in the property ended.
Since Ashok did not transfer the insurance policy to Rakesh, the policy is still in Ashok’s name.
But now, Ashok no longer suffers any financial loss if the factory is destroyed, because he is no longer the owner.
Rakesh, the new owner, does not have any coverage under the old policy because it was not transferred to his name.
According to the Principle of Insurable Interest, the insured must have an insurable interest in the subject matter both at the time of taking the policy and at the time of loss.
Since Ashok no longer has insurable interest, he cannot claim.
Rakesh cannot claim either, because he does not have a valid policy in his name.
Therefore, neither Ashok nor Rakesh can recover the loss.
This highlights the importance of transferring the policy when ownership changes to ensure valid cover.