Insurance claim under scrutiny as Sun Life and Phoenix pay out early

In one of England's most unique insurance cases, a court has been asked to consider whether an insurance policy still stands if the insured has no legal relationship with what it is insuring itself against.

The question was raised in a claim concerning Steamship, a protection and indemnity club, which insured itself against personal injury and death of people on board vessels owned by its members. The reinsurers, Sun Life Ass-urance of Canada and Phoenix, which for the first time in English insurance history paid out to the insurers before the insured's liability had been established, argue that there is no legal relationship between Steam-ship and passengers injured on its ships.

The outcome may result in a massive widening of exactly what people can insure themselves for.

Dominic Kendrick QC, of 7 King's Bench Walk, for Phoenix, said it may mean a company whose director is Eurosceptic may insure himself against the impact on his company of Britain's entry into Europe.

This harps back to 18th century legislation in which individuals insured themselves against losses arising from bets they placed on, say, the health of the king and the chances of success in a war.