I

The Appellant took out an insurance policy for one year on 15 October 2010 which insured against risk on all real and personal property, and against business interruptions and the loss of profit of the Appellant and all its group companies trading in Zambia. On 12 September 2011 a fire gutted a premises of the Appellant. At the time of the fire, the titleholders of the premises were Gulam Ahmed Adam Patel and Ayyub Adam Patel who traded under the name ‘Nyimba Filling Station and Supermarket’. The two were also shareholders in the Appellant Company.

The Appellant claimed on the policy for material damage. This claim was settled by the Respondent. The claim for business interruption and loss of profit was later rejected by the Respondent when it was discovered that the insured property was not registered in the name of the Appellant. The Respondent repudiated the policy for lack of insurable interest, refused to honour the claim for business interruption and loss of profit and sought to recover the money paid for the risk on real and personal property.

The Appellant took the matter to the High Court. The learned High Court judge held that the Appellant made a representation that it owned the insured property when it did not in fact do so and further that the Appellant's misrepresentation was fraudulent rendering the insurance void and the claim on the policy untenable. It is against this judgment that the Appellant appealed.

Held

1. The insurable interest requirement does not necessarily require an insured to own the insured property outright. A less direct interest is enough. It may be enough that the insured is in possession of the property, or simply that it would suffer loss if the property were to be damaged.
2. The determination of insurable interest should depend on a careful reading of the contract of insurance in each case.
3. While authorities of apex courts in England will remain persuasive on this court, they shall not be applied without consideration of the circumstances in which they were decided.
4. Insurance contracts are contracts of utmost good faith. Each party to the contract should not only disclose all the relevant information truthfully, but should also refrain from misleading the other party to the contract.
5. Misrepresentation must take into account two tests. These are the materiality test and the inducement test. In addition to materiality, the insurer must show that they were in fact induced by the misrepresentation.
6. A misrepresentation is material if it influences a prudent insurer in deciding first, whether or not to take up the risk and second, the premium to be fixed for such risk. The test for materiality is an objective one made by reference to the attitude of a hypothetical prudent insurer.
7. A representation is influential if it weighs on the critical decision to insure or not to insure, and if to insure, on what terms. The insurer will only be entitled to avoid a policy if they can show that they were induced by the non-disclosure or misrepresentation by the insured, to enter into the contract.