Q.A stranger who has no financial stake whatsoever in a particular warehouse cannot validly insure that warehouse against fire, because doing so would violate which principle of insurance?
(A) Principle of Indemnity
(B) Principle of Insurable Interest
(C) Principle of Subrogation
(D) Principle of Mitigation of Loss

Without a genuine financial stake in the property insured, the insured would gain from its loss rather than lose, which is exactly what Insurable Interest exists to prevent.

Ask whether the person insuring would genuinely suffer a financial loss if the event occurred — that is the test this principle applies.

Insurable Interest requires the insured to have a genuine, legally recognised financial stake in the subject matter of insurance, such that they would suffer real financial loss if the insured event occurred, and gain nothing if it did not. A stranger with no stake in the warehouse would, if allowed to insure it, actually gain from its destruction rather than lose from it — turning insurance into a wager, which the law does not enforce.

Option-by-option analysis:

• (A) Incorrect — Indemnity concerns the amount payable to someone who already validly holds the policy, not whether they were entitled to take the policy out in the first place.
• (B) Correct — this is exactly the principle that requires a genuine financial stake before a valid policy can exist.
• (C) Incorrect — Subrogation applies only after a valid claim has already been paid out.
• (D) Incorrect — Mitigation of Loss is the insured's duty to minimise a loss once it occurs, unrelated to whether they had a right to insure the property at all.