Determination of insurable interests in property insurance contracts

Abstract: The principle of insurable interest in property insurance contracts plays a crucial role in determining the eligible parties to enter into insurance agreements as well as the scope of their rights and interests when an insured event occurs. Compliance with this principle is a prerequisite to ensure the legality and validity of property insurance contracts under Vietnamese law. However, current legal provisions still contain certain shortcomings in defining insurable interest, thereby posing challenges in practical application and dispute resolution. Therefore, it is essential to conduct research and analysis to improve the legal framework governing insurable interest in property insurance contracts, with a view to enhancing the effectiveness of law enforcement and protecting the legitimate rights and interests of relevant parties in property insurance relationships.

Keywords: property insurance, insurable interest, property insurance contract.

I. Introduction

The determination of insurable interests is an essential principle that ensures the legal validity of property insurance contracts. At present, with the development of the insurance market and the increasing number of financial transactions related to property insurance, it has become more necessary than ever to ensure that the insured possesses a legitimate interest in the property insured. In many countries, such as the United Kingdom, Australia, Singapore, and Viet Nam, the concept of insurable interest in property insurance has been codified to prevent the formation of void insurance contracts. In the absence of a legitimate interest, an insurance contract may be declared void under insurance law, thereby precluding the insured from claiming indemnification when a loss occurs. Therefore, both insurers and the insured must clearly understand this principle, while insurance law should continue to be improved to strictly regulate the determination of insurable interests in property insurance contracts.

II. Overview of property insurance and insurable interests in property insurance contracts

2.1. Concept and characteristics of property insurance

From both theoretical and practical perspectives, property insurance is understood as a legal mechanism through which an insurance enterprise undertakes to compensate for the material loss suffered by the insured when a risk adversely affects the insured property[2]. Such risks may include fire, theft, natural disasters, or other unexpected events that diminish the actual value of tangible property. According to the definition provided by the OECD, property insurance is a branch of non-life insurance that provides financial protection against physical loss or damage to specific objects such as houses, factories, production equipment, goods, or movable assets used for business and daily activities[3]. In Viet Nam, although property insurance has become a common and widely applied form of insurance in various sectors, the Law on Insurance Business 2022 does not provide a definition for this type of insurance. Instead, its provisions approach regulation through the adjustment of constituent elements such as the insured object, the insured event, and the principle of indemnity. In essence, property insurance is a type of insurance in which the insured object is property - that is, assets that can be valued in monetary terms. Under this type of insurance, the insurance enterprise undertakes to protect the financial interests of the insured associated with the property for which coverage is sought[4]. Unlike life insurance or social insurance, property insurance strictly adheres to the principle of indemnity, meaning that the insured is entitled to receive only an amount corresponding to the actual loss incurred, which shall not exceed the market value of the property at the time the risk occurs. This reflects the limited nature of financial protection under property insurance, while also preventing moral hazard and ensuring fairness between the parties to the contract relationship.

An important theoretical feature to note is that the subject matter of property insurance is not limited to tangible objects but may also include proprietary rights that can be quantified, provided that the insured is able to prove a legitimate financial interest arising from such rights. This approach reflects the essence of property insurance as an organized risk allocation mechanism operating on the principles of voluntariness, reciprocity, and legal commitment. However, the absence of an official definition of property insurance under Vietnamese law creates a regulatory gap, which in turn affects the consistency of legal application, particularly in determining the precise scope of the insured subject matter, the conditions giving rise to the obligation of indemnity, and the role of insurable interest within the legal relationship between the parties.

Based on the aforementioned viewpoints, property insurance may be defined as a type of insurance under which an insurance enterprise, on the basis of a lawfully established contract and the performance of the premium payment obligation, undertakes to indemnify the insured for the actual losses incurred in respect of their lawful property as a result of risks previously agreed upon in the contract.

From the foregoing analysis, several key characteristics of property insurance may be identified as follows: (i) property insurance is preventive and compensatory in nature, as it involves the transfer of risk from the policyholder to the insurance enterprise through a contract, while simultaneously encouraging risk-control measures to minimize potential losses; (ii) the insured subject includes not only tangible property such as houses, goods, and machinery, but also extends to property rights that can be monetarily quantified, provided that the insured possesses a lawful financial interest attached to such subject; (iii) the insurer’s liability to indemnify arises only when an insured event occurs, causing actual loss and falling within the scope of risks agreed upon in the contract, thereby reflecting the conditional nature of the obligation typical of this type of insurance; (iv) property insurance adheres to the principle of proportional indemnity, under which the insurer compensates only within the limits of the actual loss and not exceeding the value of the property at the time the risk occurs, so as to prevent moral hazard and ensure fairness; (v) property insurance protects only those persons who hold a lawful interest in the insured property, ensuring that the policyholder would in fact suffer a genuine loss should the risk occur, thereby excluding speculative or fraudulent conduct.

Thus, clearly identifying these characteristics not only elucidates the mechanism of risk distribution between the parties to the contract but also contributes to enhancing the effectiveness of the application and enforcement of insurance law.

2.2. Concept and characteristics of insurable interest

The concept of insurable interest is not merely regarded as a formal condition for establishing the validity of an insurance contract but also serves as an important legal foundation to ensure the lawful rights of the claimant when a risk occurs. From a theoretical perspective, insurable interest reflects a specific and quantifiable relationship between the insured and the subject matter insured, in which the occurrence of a risk affecting the subject matter would result in an actual financial or economic loss to that person. This connection may arise from ownership, legal obligation, lawful possession, or other proprietary interests recognized by law. According to the widely accepted interpretation in insurance law theory, an insurable interest exists when the insured stands to suffer an actual loss, deprivation of a lawful benefit, or the incurrence of a direct legal liability as a consequence of the insured event[5]. Numerous scholars have reinforced the argument that the essence of insurable interest lies in its nature as a substantive condition associated with financial risk. E.W. Patterson emphasized that insurable interest constitutes a specific nexus between the insured and the insured event, to the extent that, should the event occur, the insured would sustain an actual loss. Similarly, Rodda asserted that an insurable interest can only be recognized when the insured event is capable of producing an adverse economic consequence for the insured, namely, a concrete financial detriment rather than a hypothetical one[6]. In Grigsby v. Russell, the Supreme Court of the United States established that insurable interest is not merely a formal legal requirement but represents a genuine and legitimate concern in the continued existence of the insured. Such interest serves not only to exclude speculative transactions but also implies that those who share a sufficiently close relationship with the insured are less likely to be motivated to harm them than persons having no moral or economic ties[7]. Thus, from a legal standpoint, an insurable interest arises when a person possesses a lawful relationship or a specific financial interest in the insured property - such as ownership, possession, lawful use, or equitable interest. The existence of this connection forms the basis for determining whether that person would in fact suffer a loss upon the occurrence of a risk. From a theoretical perspective, this principle reflects the doctrine of commensurate indemnity, under which the insured is entitled to compensation only to the extent of the actual loss sustained, measured against their lawful interest in the property.

In Viet Nam, the Law on Insurance Business 2022 does not provide a definition of “insurable interest” but instead adopts a listing approach under Article 44, according to which the policyholder is deemed to have an insurable interest if they have ownership rights, other rights in respect of property, or rights of possession or use over property not owned by them. A distinctive feature of this provision lies in the expansion of the scope of insurable interest beyond ownership to encompass various other forms of lawful benefits, such as the right of exploitation, the right to enjoy fruits and profits, or any legal relationship under which the occurrence of loss may cause actual damage to the insured. In property insurance, insurable interest signifies that the policyholder has a financial interest in the property; thus, if the property is damaged, destroyed, or lost, they will suffer a financial or economic loss. Consequently, insurable interest serves not only as a prerequisite for the conclusion of an insurance contract but also as a decisive factor determining the entitlement to insurance indemnity in the event of loss[8]. Furthermore, the English legal system as early as the eighteenth century recognized this requirement under the statutes enacted during the reigns of George II and George III in 1774, which applied to both life and property insurance. The purpose of these enactments was to eliminate insurance contracts based on speculative motives concerning the risks of others.[9] Both statutes required that the person entering into the insurance contract must have a lawful interest in the subject matter insured at the time of concluding the contract with the insurer. From a general perspective, insurable interest represents a special relationship that the party to an insurance contract (including the insured or the policyholder) must have with the subject matter insured. This relationship may be associated with life, property, or legal liability to which the person is exposed.[10] Moreover, MacGillivray on Insurance Lawaffirms that insurable interest constitutes a fundamental principle of insurance contracts, ensuring that the contract operates for its intended financial protection purpose, preventing moral hazard, and maintaining fairness within the insurance market[11].

Thus, the concept of insurable interest in a property insurance contract may be understood as a lawful relationship or a legitimate financial interest between the policyholder (the insured) and the insured property, existing either at the time of the conclusion of the contract or at the time of the occurrence of the risk. This relationship must ensure that, if a loss occurs to the property, the insured will suffer an actual financial or economic detriment. Such an interest may arise from ownership, lawful use, lawful possession, or any other right or interest recognized by law.

It can be seen that the principle of insurable interest constitutes one of the fundamental and significant principles in the law of property insurance, as it establishes a lawful connection between the policyholder and the insured subject matter, thereby ensuring fairness in contractual relations. From this principle, several key characteristics of insurable interest may be identified as follows: (i) it must represent a lawful interest, recognized by law and not contrary to social morality; (ii) it must be capable of pecuniary valuation, serving as a basis for determining the insured amount; (iii) it must exist at the time of the conclusion of the contract and be associated with the insured’s potential to suffer financial loss if the risk occurs. These characteristics not only embody the indemnity nature of property insurance but also serve to prevent moral hazard, while safeguarding transparency and legal certainty for the contracting parties.

A clear understanding of the concept and characteristics of insurable interest in property insurance contracts holds significant theoretical and practical importance, as it ensures that the contract is concluded with the correct subject matter, for the right purpose, and in accordance with the true nature of property insurance.

III. Insurable interest.in property insurance contracts

3.1. The time when the insurable interest arises in property insurance contracts

In property insurance contracts, the time at which the insurable interest arises is a decisive factor in determining the validity of an insurance claim. However, legal systems around the world do not share an absolute consensus on this issue. Depending on the legislative approach, the structure of the legal system, and the specific type of insurance, the requirement regarding the point in time when the insurable interest must exist may vary, as follows:

n the United Kingdom, this principle is codified in the Marine Insurance Act 1906, which provides that the insured must possess an insurable interest at the time of the loss, unless the policy contains a “lost or not lost” clause[12]. Furthermore, Section 5 of this Act stipulates that the insured must have a legal interest in the subject matter of insurance at the time of the loss; otherwise, no claim for indemnity shall be enforceable. This principle was further reinforced in the landmark case of Macaura v. Northern Assurance, where the court held that only those who have ownership or a legally recognized interest in the property at the time of the damage are entitled to claim indemnity[13]. Different jurisdictions take varying approaches to determining when the insurable interest must exist in property insurance contracts. In Australia, New Zealand, and several other countries, the law does not require the insured to have an insurable interest at the time of entering into the contract; it suffices that such an interest exists at the time of the loss[14]. Conversely, in Singapore and many other jurisdictions, the insured must establish an insurable interest at the time the contract is concluded. Determining when the insurable interest exists is of fundamental importance, as it directly affects the legality and validity of the insurance contract. Despite differences among legal systems, the underlying principle remains that the insured must demonstrate a lawful and genuine interest in the insured property to ensure that the contract is valid and enforceable when a risk materializes[15].

In Viet Nam, according to the view of Nguyễn Thị Thủy, the requirement for an insurable interest to exist at the time of contract formation means that an individual or organization is considered to have an insurable interest only if, at the moment of entering into the contract, they possess a lawful interest in the property - such as ownership, possession, or legitimate use rights. In addition, the policyholder may also substantiate their interest through financial obligations related to the property, for example, when the property is mortgaged or pledged as collateral. If the policyholder fails to prove a lawful interest in the property at the time of concluding the contract, the insurance contract may be rendered void or unenforceable for indemnification when a loss occurs[16]. An opposing view argues that the insurable interest may consist of a present or future interest in the insured subject matter and need not necessarily exist at the time of contract formation, provided that it is established at the time of the loss[17]. Under this approach, what matters is not whether the policyholder has an insurable interest at the inception of the contract, but whether such an interest lawfully exists at the time the loss occurs. This interpretation introduces flexibility in determining the insurable interest, thereby expanding the scope of protection afforded by the insurance contract - particularly in cases where ownership or other lawful interests in the insured property change during the policy term. In summary, national legal systems differ regarding the point in time when an insurable interest must exist in property insurance. Some countries with well-developed insurance markets, such as the United Kingdom[18], Australia[19], and China[20] -although the latter’s insurance market developed later - do not treat the existence of an insurable interest at the time of contract formation as a mandatory condition.

In Viet Nam, the Law on Insurance Business currently provides specific rules on the timing of the existence of an insurable interest. Specifically, pursuant to Article 44(3) of the Law on Insurance Business 2022, at the time of the loss the policyholder or the insured must have an insurable interest. This provision explicitly affirms the legislator’s position that establishing and maintaining an insurable interest is a substantive condition linked to the insurer’s indemnity obligation. In addition, Article 25 also establishes the principle that an insurance contract shall be declared null and void if the policyholder does not have an insurable interest at the time of entering into the contract. The wording of point a, Clause 1 of this Article demonstrates the legislator’s consistent stance in treating insurable interest as a matter of the contract’s substance, and failure to meet this condition carries the serious legal consequence that the contract has no legal effect from the time of conclusion. From a legal standpoint, this approach leans toward safeguarding transparency, preventing speculative insurance, and ensuring a real reciprocity of interests between the contracting parties. Furthermore, although Article 26 does not expressly address the timing of the establishment of insurable interest, it indirectly reflects a requirement that the insured maintain a lawful, factual connection with the insured property throughout the performance of the contract. For instance, if the insured fails to perform the obligation to safeguard the property under Clause 3, or if the level of risk changes materially without acceptance under Clause 2, the insurer has the right to terminate the contract under Article 26. These situations illustrate the nature of insurable interest as a legal relationship that must be maintained continuously, rather than being assessed at a single fixed moment. It follows that, although the Law does not explicitly state “at which time the insurable interest must exist,” by way of the nullity mechanism in Article 25 and the contract-termination mechanism in Article 26, the law implicitly requires that the insurable interest be lawfully established and actually maintained at least at one of the two points in time: either when the contract is concluded or when the insured event occurs.

3.2. Cases of determining insurable interest and legal consequences when the contract is void

Firstly, the policyholder is not necessarily the owner of the property.

In certain cases, the policyholder is not required to be the lawful owner of the property but may still enter into a valid insurance contract. The crucial condition is that the policyholder must have a lawful interest in the property, such as the right of possession, the right of use, or the right of disposition as prescribed by law[21]. In such cases, the insurance contract remains valid if the policyholder possesses a lawful interest in the property at the time of conclusion. However, if the policyholder fails to prove the existence of a lawful insurable interest, the contract may be considered void. This provision is commonly applied under the legal system of Viet Nam as well as in many other jurisdictions[22]. From a practical perspective, allowing an individual or organization without a lawful interest in the property to enter into an insurance contract may lead to insurance fraud, undermining transparency and fairness in the insurance market. A typical example is the case Kosmopoulos v. Constitution Insurance Co. of Canada, where Mr. Kosmopoulos, the sole shareholder and director of a company, purchased insurance for property related to the company’s business activities, although the property was legally owned by the company as a separate legal entity. The insurer denied compensation on the ground that he was not the legal owner of the property. However, the Supreme Court of Canada held that Mr. Kosmopoulos could be entitled to indemnity if he could establish a “realistic expectation,” meaning an actual and legitimate interest in the insured property, regardless of the absence of legal ownership. This judgment demonstrates that the decisive condition is not legal ownership but the existence of a substantive insurable interest at the time the insured event occurs[23]. Nevertheless, if the policyholder cannot establish a lawful or actual insurable interest, the contract may be deemed void[24]. This rule is codified in Article 25 of the Law on Insurance Business 2022 of Viet Nam, aiming to prevent insurance fraud that could arise if individuals or organizations without a lawful interest in the property were allowed to conclude insurance contracts.

Secondly, the policyholder must have the right to possess, use, or dispose of the property.

According to the prevailing view in the law of property insurance, the insured party must possess at least one of the following rights over the property: the right to possession, the right to use, or the right to disposal. The possession of any of these rights serves as the legal basis for establishing an insurable interest, reflecting the policyholder’s clear economic connection to the insured property. This principle is recognized not only under Vietnamese law but also affirmed in many international legal systems. For instance, in the English case Stock v. Inglis, the Court held that a party who was not the absolute owner of the goods but had possession and a contractual obligation to deliver them under a commercial contract possessed a lawful insurable interest[25]. The combination of possession and contractual duty was deemed sufficient to constitute an insurable interest under English law. Similarly, pursuant to Article 44(1) of the Law on Insurance Business 2022 of Viet Nam, an insurable interest in property includes the right to possess, use, and dispose of such property. Therefore, lessees, authorized representatives, or persons using the property under a lawful contract may qualify as legitimate policyholders. In practice, such interests often arise from civil relationships such as agency contracts, lease contracts, capital contribution agreements, or other temporary asset transfer transactions. However, to be recognized as an insurable interest, these transactions must be conducted lawfully and transparently and comply fully with the procedures prescribed by law. If the transfer of possession or use is unlawful or not recognized at the time the insurance contract is concluded, the insurable interest does not arise, and the contract may be declared void pursuant to Article 113 of the Civil Code 2015 and Article 25 of the Law on Insurance Business 2022. A typical illustration is the case of Lucena v. Craufurd (1806), where the English Court ruled that a person who stands to benefit from or suffer loss upon the occurrence of an insured event has an insurable interest, even without ownership. Likewise, in the Moonacre case, Judge Colman QC held that if the insured has a sufficiently close relationship to the subject matter of the insurance - such that they would benefit from its preservation or suffer loss from its destruction - the contract is not a wager, and the person possesses an insurable interest[26].

From the analysis of the two foregoing cases, it can be inferred that an insurable interest in a property insurance contract is not necessarily attached to ownership of the property but is established based on a lawful or factual relationship of interest between the policyholder and the insured property. The recognition of possession, use, or disposal rights, as well as legitimate expectations of benefit acknowledged by law, constitutes the foundation for determining an insurable interest in a flexible yet lawful manner, thereby preventing insurance fraud. Accordingly, the insurable interest serves as a decisive condition for the validity of a property insurance contract and must exist in a genuine, lawful, and demonstrable manner either at the time of contract conclusion or at the time of the occurrence of the insured risk, depending on the specific type of insurance contract.

Thirdly, regarding the legal consequences when a property insurance contract is rendered void due to the absence of an insurable interest at the time of contract conclusion.

According to Article 25(2) of the Law on Insurance Business 2022, when an insurance contract is declared void, it shall have no legal effect from the time of its conclusion. The parties must return to each other what they have received, and the party at fault that causes damage must compensate for such damage. In cases where a property insurance contract is rendered void because the policyholder does not have an insurable interest at the time of contract conclusion, the legal consequences shall comprehensively arise in accordance with this principle. From a theoretical perspective, when entering into a contract, the parties intend to achieve specific purposes. To safeguard the rights and interests of the parties, the law requires that the contract must fully satisfy all necessary conditions. If these conditions are not met, the contract may be declared void, and the contracting parties must bear the corresponding legal consequences. The fundamental reason a property insurance contract is considered void lies in its failure to create legal rights and obligations between the contracting parties.

When a contract is declared void, the law stipulates that the party at fault causing the damage shall bear liability for compensation[27]. This is an important principle in civil relations, ensuring fairness and accountability between the parties. In property insurance transactions, unlike ordinary transactions, the policyholder often seeks to insure property for which ownership may not always be clearly established. Initially, the policyholder may not be certain whether they possess an insurable interest. Therefore, if the contract is rendered void for this reason, the primary responsibility generally lies with the policyholder. In cases where the policyholder intentionally acts fraudulently, dishonestly during the process of entering into the contract, or participates in insurance without an insurable interest for the purpose of gaining unjust profit, they shall not only be liable for damages arising from the void contract but may also be subject to administrative sanctions for violating the law on insurance business. This mechanism serves to prevent the abuse of insurance for profit-seeking purposes while safeguarding the legitimate rights and interests of the parties concerned.

3.3. Legal consequences when the insurable.interest ceases to exist at the time of the insured event

In a property insurance contract, the insurable interest of the policyholder must not only exist at the time of conclusion but also be maintained throughout the duration of the contract, particularly at the time of the occurrence of the insured event, as stipulated in Article 44(3) of the Law on Insurance Business 2022. When the policyholder no longer retains ownership, possession, use, or disposal rights over the property - whether due to transfer, loss of lawful control, or other reasons - the insurable interest simultaneously ceases to exist. In such cases, the insurer has no obligation to indemnify, since the condition for claiming insurance is not met at the time the risk arises. This reflects a fundamental principle in insurance law: only a person who holds a legitimate insurable interest at the time of loss may claim indemnity. A typical illustration is found in Hebdon v. West, where the plaintiff insured a business premises but subsequently transferred it without notifying the insurer. When the loss occurred, the claim was rejected because, at the time of the risk, the plaintiff no longer possessed a lawful insurable interest in the property[28]. This principle is firmly established under English law - that a person has an insurable interest only if they have a legal or equitable relationship with the insured property, by virtue of which they may benefit from its preservation or suffer loss from its destruction. Accordingly, if the policyholder no longer holds a lawful interest in the property at the time of loss, they are not entitled to claim indemnity, and the insurance contract ceases to have effect in relation to them[29].

In Viet Nam, Article 44(3) of the Law on Insurance Business 2022 explicitly establishes that, at the time of loss, the policyholder or the insured must have an insurable interest. This provision is mandatory and constitutes a prerequisite for the insurer’s obligation to indemnify. In practice, insurance companies often invoke this rule to deny payment in cases where the claimant cannot prove a lawful interest in the insured property at the time of the insured event. This is also one of the most common legal grounds for disputes in property insurance litigation. A typical example is the Judgment on Property Insurance Contract Dispute No. 09/2023/KDTM-PT between Corporation X (EVNNPT) and Corporation Y (MIC). In this case, the insurer (Corporation Y – MIC) maintained its position concerning the determination of the lawful insurable interest of the claimant (Power Transmission Company No. 4 – Corporation X) at the time of the loss. MIC contended issues related to the scope of insurance coverage and the cause of loss to limit its indemnity liability. Such an approach ensures compliance with contractual and statutory provisions while preventing insurance fraud. Disputes of this kind typically revolve around determining the existence of insurable interest and assessing the actual extent of the loss. This reflects a recurring pattern in property insurance litigation[30]. BMoreover, in many cases, the loss of insurable interest may lead to the termination of the property insurance contract. Under general principles, an insurance contract terminates when the insured property no longer belongs to the policyholder. At that point, the contractual relationship ceases to have a legal basis, and the insurer is no longer required to provide coverage for a subject matter in which the policyholder no longer has a lawful interest. When a contract is terminated, the legal consequences are governed by Article 27(2) of the Law on Insurance Business 2022, which requires the insurer to refund the portion of the premium corresponding to the remaining term of the contract, while still being obliged to indemnify if the insured event occurred before termination. This provision protects the legitimate interests of the policyholder, preventing situations in which they lose both the insured property and the remaining premium or the indemnity already accrued. n practice, similar consequences arise when the insured property is transferred to a third party without a lawful transfer of the insurance contract. Under Article 28(1) of the Law on Insurance Business 2022, the transfer of an insurance contract is effective only with the written consent of the insured or their legal representative. Failure to comply with this procedure renders the transfer ineffective and may be deemed an implied termination of the contract. Consequently, this not only affects the rights of the transferor but also poses legal risks to the transferee in the event of an insured loss.

In summary, insurable interest is a mandatory legal condition and plays a decisive role in determining the insurer’s liability to indemnify. The absence of such interest at the time of the insured event gives rise to significant legal consequences, including the non-existence of the insurer’s obligation to indemnify and, in many cases, the termination of the insurance contract. The provisions of the Law on Insurance Business 2022 clearly establish the requirement to maintain a lawful interest between the insured party and the insured property throughout the duration of the contract. This mechanism ensures rationality, fairness, and the prevention of insurance fraud in property insurance relations.

IV. Certain shortcomings in legal provisions on insurable interest in property insurance contracts

First, regarding the determination of the party having a lawful insurable interest.

Current legislation does not clearly or comprehensively define the criteria for establishing an insurable interest in respect of parties who are not the owners of the insured property, such as mortgagees, lessees, managers, or persons having a legitimate expectation of benefit. Although Article 44(1) of the Law on Insurance Business 2022 enumerates three fundamental rights - possession, use, and disposition - as the basis for determining an insurable interest, it still lacks detailed guidance for more complex situations arising in property transactions. In many cases, the existence of a practical or indirect interest in the insured property - such as financial rights derived from lease agreements, secured debt claims, or control rights through capital contribution - is not explicitly recognized as constituting an insurable interest. This creates a legal gap, forcing parties to rely on the subjective assessment of insurance enterprises or courts, which in turn increases the risk of disputes and leads to inconsistent adjudication outcomes.

Second, regarding the legal consequences when an insurance contract is rendered void due to the absence of an insurable interest at the time of conclusion.

According to Clauses 1 and 2 of Article 25 of the Law on Insurance Business 2022, an insurance contract shall be rendered void if the policyholder does not have an insurable interest at the time of conclusion, and the parties must return what they have received, with the party at fault being liable for any resulting damages. However, this provision lacks sufficient differentiation for various situations arising in practice, thereby leading to certain shortcomings: (i) the law does not clearly define when a policyholder is deemed to be “at fault” for lacking an insurable interest at the time of conclusion. In practice, there are many cases where the policyholder acts in good faith, believing that they possess an insurable interest due to a misunderstanding of property relations or the complexity of ownership structures (for example, in cases involving leased property, company shareholders, or authorized managers). Without a mechanism to distinguish between intentional fraud for profit and reasonable ignorance, applying the same consequence of nullity uniformly would result in unfairness - particularly for policyholders who are individuals or small enterprises lacking in-depth legal knowledge of insurance matters; (ii) the law does not provide clear criteria for determining the extent of damages to be compensated when a contract is declared void. Consequently, in many disputes, insurers automatically disclaim all obligations, refuse to refund premiums already collected, or delay such refunds on the grounds of investigating fault. The absence of guidance on financial settlement mechanisms following contract nullification has unnecessarily impaired the rights of policyholders - especially where the fault does not wholly lie with them; (iii) in practice, declaring an insurance contract void sometimes creates an “insurance gap,” where the risk occurs during a period in which both parties believe the contract to be valid. Without a legal mechanism to preserve the policyholder’s rights in certain special circumstances—such as when the insurer has already accepted the contract and collected the premium but later discovers the absence of an insurable interest—the consequences can be severe, particularly in high-risk sectors such as transportation, construction, or industrial manufacturing.

In summary, although the provisions on the legal consequences of an insurance contract being declared void for lack of insurable interest provide a general framework, they still oversimplify practical realities, lack clear criteria for classifying fault, fail to establish a reasonable compensation mechanism, and do not fully ensure the principle of fairness between the contracting parties.

Third, regarding the legal consequences arising when the insurable interest no longer exists at the time of the insured event.

Article 44(3) of the Law on Insurance Business 2022 stipulates that, at the time of loss, the policyholder or the insured must have an insurable interest. This provision embodies a universal principle of insurance law - only a person who has a lawful interest is entitled to indemnification. However, this regulation reveals several notable shortcomings: First, the law does not clearly define the criteria or limits for assessing the “loss of insurable interest.” In practice, the relationship of interest between the policyholder and the insured property may exist in various flexible forms, such as actual possession, management rights under a contract, economic expectancy, or financial obligations (e.g., mortgage or guarantee). When a loss occurs, if the policyholder no longer holds formal ownership but still retains obligations related to the property (for example, incomplete transfer or temporary enforcement seizure), rigid application of the requirement to “have an interest at the time of loss” may lead to unfair denial of indemnification. The current legislation lacks criteria to distinguish the lawful forms of insurable interest in such intermediary situations. Second, the law also fails to specify a clear procedure for handling insurance contracts in cases where the insurable interest no longer exists, leading insurers to unilaterally terminate the contract without notification or renegotiation with the policyholder. For instance, when the insured property is transferred without completing the required procedure for assignment of the insurance contract under Article 28 of the Law on Insurance Business 2022, the contract may be deemed automatically terminated. The absence of a warning mechanism or contractual adjustment procedure results in both the transferor and transferee losing protection without an opportunity to prevent or negotiate with the insurer. Third, the legal consequence regarding premiums after termination due to the loss of insurable interest has not been flexibly regulated. Article 27(2) of the Law on Insurance Business 2022 requires insurers to refund the unearned portion of the premium. However, the determination of the termination date remains unclear, particularly in the absence of written consent to the transfer of the contract, causing insurers to refuse refunds or reimburse only a minor portion without proper justification. The lack of a mandatory mechanism for disclosure and transparent verification of the termination date puts the policyholder at a financial disadvantage. Fourth, there is no provision requiring insurers to proactively monitor and update information on insurable interests during the contract term. Assigning the entire burden of such verification to policyholders, even when they are under no explicit legal duty to notify, exposes them to significant legal risk. A contract may have ceased to be valid without the policyholder’s knowledge, only for the insurer to deny indemnification once a loss occurs.

V. Some proposals to improve the legal provisions on insurable interest in property insurance contracts

First, improve the criteria for determining the entities that have an insurable interest in property insurance contracts.

Supplement the concept and criteria for determining insurable interest, whereby: (i) the Law on Insurance Business should be amended or supplemented, or a subordinate guiding document should be issued, to clarify that insurable interest not only includes the three basic rights (possession, use, disposition) but also encompasses other lawful financial interests in the property, such as rights arising from lease agreements, secured claims, asset management under authorization, or equity interests; (ii) a guideline catalogue of cases with insurable interest should be developed. The competent authority needs to issue an open catalogue of cases that may be regarded as constituting insurable interest to serve as a basis for insurance enterprises and policyholders to apply, thereby limiting discretionary assessment and preventing disputes; (iii) the principle of lawful economic interest should be recognized, such that the law acknowledges that any quantifiable economic interest arising lawfully from a relation with the property may be considered an insurable interest, provided it is not intended for insurance exploitation or in violation of the law.

Second, improve the provisions on the legal consequences when an insurance contract is rendered void due to the absence of insurable interest at the time of conclusion.

Classify the fault of the policyholder, by supplementing a mechanism in the legal provisions to distinguish between intentional fault (fraud, opportunistic behavior) and unintentional fault (lack of knowledge, reasonable mistake). In cases of unintentional fault, adjustment of the contract should be allowed instead of declaring the contract wholly void, in order to protect the bona fide policyholder. In addition, establish a conditional preservation mechanism for the contract’s validity in situations where the insurer has already accepted the contract and collected the premium but later discovers the absence of insurable interest; the contract’s validity may be preserved for a short verification period (e.g., 15 days). If, after this period, the insurable interest cannot be demonstrated, the contract shall then be deemed void. Provide detailed guidance on the financial mechanism when the contract is void, including clear provisions on the time frame for premium refund and the obligation to demonstrate fault, and develop standardized forms and procedures for handling situations where a contract is void, to ensure transparency and consistency. Moreover, insurers should have the obligation to advise, warn of risks, and clearly explain to the policyholder the conditions for having insurable interest at the time of contract conclusion, so as to avoid disadvantages caused by lack of information.

Third, complete the provisions on the legal consequences when the insurable interest no longer exists at the time of the insured event.

Supplement criteria for assessing the loss of insurable interest by issuing a guidance document on criteria for identifying forms of lost insurable interest in intermediate situations, for example: during the transfer process, under asset enforcement, or performing financial or guarantee obligations related to the property. Additionally, establish procedures for updating insurable interest and notifying contract termination, such as: insurers must develop a mechanism for periodic review of the property’s status, or require the policyholder to report any changes; upon detecting indications that the policyholder no longer holds insurable interest, the insurer must promptly and clearly notify the policyholder, together with guidance for contract adjustment if necessary. Furthermore, it is necessary to clearly stipulate the timing of contract termination in the event of loss of insurable interest as a basis for calculating the refundable premium. Establish mandatory deadlines and procedures for handling premium refunds by insurers to prevent delays or unjustified refusals. The obligations of insurers to verify and update the status of insurable interest throughout the contract term should also be prescribed, especially for assets with high volatility (real estate, leased or rental properties, etc.).

VI. Conclusion

Insurable interest is a fundamental principle in property insurance contracts, serving to establish the legality and validity of the contract. Correct and full determination of insurable interest not only ensures the legitimate rights of the parties but also helps prevent insurance fraud, maintaining fairness and transparency in the insurance market. However, practical implementation of the regulations still reveals numerous shortcomings, particularly in identifying the subjects with insurable interest and handling the consequences when such interest ceases to exist. Therefore, improving the legal framework in a clear, flexible, and equitable manner is an urgent requirement to protect the rights of the parties, enhance the effectiveness of law enforcement, and promote the sustainable development of the property insurance market in Viet Nam.

1. Civil Code 2015.

2. Vietnam Maritime Code 2015.

3. Law on Insurance Business 2022.

4. United Kingdom Marine Insurance Act 1906.

5. China Insurance Law 2015.

6. Singapore Insurance Act 1966.

7. Australia Insurance Contracts Act 1984.

8. Decree No. 46/2023/ND-CP dated July 1, 2023, detailing the implementation of certain provisions of the Law on Insurance Business.

9. Judgment No. 09/2023/KDTM-PT, Tien Giang Provincial People’s Court, dated July 28, 2023, concerning a dispute over a property insurance contract between National Power Transmission Corporation (EVNNPT) and Military Insurance Corporation (MIC).

10. Dagne Daukantaite, Is a family relationship alone enough to create an insurable interest in the life of the other?, International Journal of Baltic Law số 1(2), 37 (2004).

11. HM Revenue & Customs, GIM1050 - Legal basis of insurance: insurable interest, GOV.UK (Oct. 6, 2023), https://www.gov.uk/hmrc-internal-manuals/general-insurance-manual/gim1050 (last visited July 19, 2025).

12. IRMI, Property insurance, International Risk Management Institute (IRMI) (2025), https://www.irmi.com/term/insurance-definitions/property-insurance (last visited July 19, 2025).

13. International Journal of Academic Research and Development, Vol. 3, Issue 1, pp. 1086–1091 (Jan. 2018), https://www.academicsjournal.com/archives/2018/vol3/issue1 (last visited July 19, 2025).

14. Kosmopoulos v. Constitution Insurance Co., 1987 CanLII 75 (SCC), [1987] 1 SCR 2.

15. J. BIRDS & N. HIRD, MODERN INSURANCE LAW 123 (12TH ED. SWEET & MAXWELL, LONDON, 2021).

16. JOHN BIRDS, BEN LYNCH & SIMON PAUL, MACGILLIVRAY ON INSURANCE LAW, CH. 1, §§ 1-043 TO 1-051 (15TH ED. 2022).

17. Kimball-Stanley A., Insurance and Credit Default Swaps: Should Like Things Be Treated Alike, Conn. Ins. L.J. số 15, 241–272 (2008).

18. Law Explorer, Chapter 2: Insurable Interest, Law Explorer – Maritime Law (Oct. 16, 2015), https://lawexplorers.com/maritime-law-insurable-interest (last visited July 19, 2025).

19. Macaura v. Northern Assurance Co Ltd, [1925] AC 619, p. 633 (House of Lords, UK).

20. Nguyen Thi Nhung, Insurance Fraud and Legal Measures Against Property Insurance Fraud (Graduation Thesis), Ho Chi Minh City University of Law (2012), p. 8.

21. NGUYEN THI THUY, PROPERTY INSURANCE LAW IN VIETNAM, HO CHI MINH NATIONAL UNIVERSITY PUBLISHING HOUSE, P.67 (2010).

22. ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, GLOSSARY OF INSURANCE POLICY TERMS, OECD CENTRE FOR CO-OPERATION WITH NON-MEMBERS, PARIS (1998).

23. PATTERSON E.W., ESSENTIALS OF INSURANCE LAW, PRENTICE-HALL, NEW YORK (1957), AS CITED IN NAS COLLEGE E-CONTENT: DEEPIKA SRIVASTAV, INSURABLE INTEREST (2020), UNPAGED.

24. E.W. Patterson, Essentials of Insurance Law (Prentice-Hall 1957), cited in Deepika Srivastav, Insurable Interest (NAS College e-content, 2020) (unpaged).

25. Salzman G.I., Public Policy and Insurable Interest in Life Insurance, Univ. Miami Law Rev. số 15(1), 37–42 (1960).

26. Shaun Marker, A Policyholder Must Have an Insurable Interest in Property at the Time the Insurance Policy Is Issued and at Time of Loss, Property Insurance Coverage Law Blog (Jul. 23, 2024), https://www.propertyinsurancecoveragelaw.com/blog/a-policyholder-must-have-an-insurable-interest-in-property-at-the-time-the-insurance-policy-is-issued-and-at-time-of-loss/ (last visited Mar. 5, 2025).

[1] M.A. Pham Thi Viet, PhD Researcher, Hue University of Law – Hue University.

[2] IRMI, Property insurance, International Risk Management Institute (IRMI) (2025), https://www.irmi.com/term/insurance-definitions/property-insurance (last visited July 19, 2025).

[3] ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, GLOSSARY OF INSURANCE POLICY TERMS, OECD CENTRE FOR CO-OPERATION WITH NON-MEMBERS, PARIS (1998).

[4] Nguyen Thi Thuy, Development and Construction of Property Insurance Law in Vietnam, (Doctoral Dissertation in Law), Ho Chi Minh City University of Law (2009), p. 15.

[5] Kimball-Stanley A., Insurance and Credit Default Swaps: Should Like Things Be Treated Alike, Conn. Ins. L.J. số 15, 241–272 (2008).

[6] PATTERSON E.W., ESSENTIALS OF INSURANCE LAW, PRENTICE-HALL, NEW YORK (1957), AS CITED IN NAS COLLEGE E-CONTENT: DEEPIKA SRIVASTAV, INSURABLE INTEREST (2020), UNPAGED.

[7] Salzman G.I., Public Policy and Insurable Interest in Life Insurance, Univ. Miami Law Rev. số 15(1), 37–42 (1960).

[8] Shaun Marker, A Policyholder Must Have an Insurable Interest in Property at the Time the Insurance Policy Is Issued and at Time of Loss, Property Insurance Coverage Law Blog (Jul. 23, 2024), https://www.propertyinsurancecoveragelaw.com/blog/a-policyholder-must-have-an-insurable-interest-in-property-at-the-time-the-insurance-policy-is-issued-and-at-time-of-loss/ (last visited Mar. 5, 2025).

[9] Dagne Daukantaite, Is a family relationship alone enough to create an insurable interest in the life of the other?, International Journal of Baltic Law số 1(2), 37 (2004).

[10] International Journal of Academic Research and Development, Vol. 3, Issue 1, pp. 1086–1091 (Jan. 2018), https://www.academicsjournal.com/archives/2018/vol3/issue1 (last visited July 19, 2025).

[11] JOHN BIRDS, BEN LYNCH & SIMON PAUL, MACGILLIVRAY ON INSURANCE LAW, CH. 1, §§ 1-043 TO 1-051 (15TH ED. 2022).

[12] United Kingdom, Marine Insurance Act 1906, Section 6.

[13] Macaura v. Northern Assurance Co Ltd, [1925] AC 619, p. 633 (House of Lords, UK).

[14] HM Revenue & Customs, GIM1050 - Legal basis of insurance: insurable interest, GOV.UK (Oct. 6, 2023), https://www.gov.uk/hmrc-internal-manuals/general-insurance-manual/gim1050 (last visited July 19, 2025).

[15] Singapore, Insurance Act 1966, Sections 241.18 and 23.

[16] NGUYEN THI THUY, PROPERTY INNSURANCE LAW IN VIETNAM, HO CHI MINH CITY NATIONAL UNIVERSITY PUBLISHING HOUSE, P.67 (2010).

[17] Nguyen Thi Nhung, Insurance Fraud and Legal Measures Against Property Insurance Fraud (Graduate Thesis), Ho Chi Minh City University of Law (2012), p. 8.

[18] HMRC, *supra* note 10.

[19] Australia, Insurance Contracts Act 1984, Sections 16 and 17.

[20] China, Insurance Law 2015, Article 12(2).

[21] Civil Code No. 91/2015/QH13, dated November 24, 2015, Article 206.

[22] Under the law of the United Kingdom, an individual may be considered in violation of the law if they intentionally participate in or facilitate the conclusion of a marine insurance contract without a legal insurable interest in the insured subject matter. This means that if a person has no legal interest in the insured property but still enters into an insurance contract, such contract may be deemed void. This provision is specifically stipulated in the Marine Insurance (Gambling Policies) Act 1909 of the United Kingdom. Under this law, violations may result in imprisonment or fines, and all funds related to the unauthorized insurance transaction may be confiscated.

[23] Kosmopoulos v. Constitution Insurance Co., 1987 CanLII 75 (SCC), [1987] 1 SCR 2.

[24] United Kingdom, Marine Insurance Act 1906, Section 4.

[25] Stock v. Inglis, (1884) 12 QBD 564 (Court of Appeal), judgment delivered on 25 March 1884, per Brett MR, Baggallay and Lindley LJJ, reversing the decision of Field J (47 LT Rep NS 416).

[26] Law Explorer, Chapter 2: Insurable Interest, Law Explorer – Maritime Law (Oct. 16, 2015), https://lawexplorers.com/maritime-law-insurable-interest (last visited July 19, 2025).

[27] Civil Code No. 91/2015/QH13, dated November 24, 2015, Article 131.

[28] J. BIRDS & N. HIRD, MODERN INSURANCE LAW 123 (12TH ED. SWEET & MAXWELL, LONDON, 2021).

[29] United Kingdom, Marine Insurance Act 1906, Section 5.

[30] Judgment No. 09/2023/KDTM-PT, People's Court of Tien Giang Province, dated July 28, 2023, concerning a dispute over a property insurance contract between the National Power Transmission Corporation (EVNNPT) and Military Insurance Corporation (MIC).