Insurable Interest

Overview

Insurable Interest is a foundational principle of insurance law: you can only insure something in which you have a legitimate financial interest. A property owner has insurable interest in their building. A contractor has insurable interest in their tools and in the liability arising from their work. Without insurable interest, an insurance contract is void.

Why It Matters for COI Compliance

When you require a vendor to add you as an Additional Insured, there must be an underlying insurable interest — your financial exposure to claims arising from the vendor's work on your property. This is why Additional Insured endorsements typically contain language limiting coverage to claims "arising out of the named insured's operations." The endorsement connects to the specific interest you need to protect.

Practical Impact

Insurable interest is rarely an issue in standard COI compliance, but it can arise in unusual arrangements. For example, requesting Additional Insured status on a vendor's policy for a project where you have no contractual or ownership relationship may not be enforceable. Ensure your insurance requirements align with your actual contractual relationship.