Insurable Interest & First Party Property Insurance

A Video Explaining Insurable Interest

I
t may be said, generally, that any one has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. An insurable interest in property is any right, benefit or advantage arising out of or dependent thereon, or any liability in respect thereof, or any relation to or concern therein of such a nature that it might be so affected by the contemplated peril as to directly damnify the insured.

The term “interest,” as used in the phrase “insurable interest,” is not limited to property or ownership in the subject matter of the insurance. An insurable interest in property may arise from some liability which an insured incurs with relation thereto. Such liability may arise by force of statute or by contract, or may be fixed by law from the obligations which insured assumes.

Moreover, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest. It is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured. For instance, although a person has no title, legal or equitable, in the property, and neither possession nor right to possession, yet he has an insurable interest therein if it is primarily charged in either law or equity with a debt or obligation for which he is secondarily liable. [Belton v. Cincinnati Ins. Co., 353 S.C. 363, 577 S.E.2d 487 (S.C. App. 2003)]

Insurable interest is a keystone of the concept of insurance, safeguarding the insurer against the risk that arises if one who will receive the monetary benefit from loss of the insured property (or life, [in the case of life insurance,]) has no interest in the property not being destroyed. [Woods v. Independent Fire Insurance Co., 749 F.2d 1493, 1496 (11th Cir. 1985)] It is well settled across the United States that having title or an ownership interest is not the sole basis for having an insurable interest in property. [Brown v. Ohio Cas. Insurance Co., 239 Ga.App. 251, 253(2), 519 S.E.2d 726 (1999)] Rather, the test of insurable interest in property is whether the insured has such a right, title, or interest therein, or relation thereto, that he will be benefitted by its preservation and continued existence, or suffer a direct pecuniary loss from its destruction or injury by the peril insured against. [Ga. Farm Bureau Mut. Ins. Co. v. Franks, 320 Ga.App. 131, 739 S.E.2d 427 (Ga. App. 2013)]

Originally, the statutory requirement of insurable interest was intended to prevent wagering on human lives with regard to life insurance. [Wood v. New York Life Insurance Co., 255 Ga. 300, 303, 336 S.E.2d 806 (1985).] The concept was soon expanded to property insurance. No insurance contract on property or of any interest therein or arising therefrom shall be enforceable except for the benefit of persons having, at the time of the loss, an insurable interest in the things insured.

To have an insurable interest, the insured must derive “a direct, pecuniary loss” from the subject matter of the contract; the loss cannot be indirect or sentimental.” [A.B. Petro Mart, Inc., 892 N.W.2d at 465; see also 14 Mich. Civ. Jur. Insurance § 135] An insurable interest in an insurance policy is determined not by the label attached to the insured's property but by whether the insured will suffer a pecuniary loss due to the destruction of the property. [Sam D Mkt. 1 v. Selective Ins. Co. of S.C. (E.D. Mich. 2021)]

ZALMA OPINION

Every insurance professional called upon to deal with a first party property insurance claim must understand how to determine and deal with the insurable interest of a person or entity insured. Insurable interest, regardless of the limits stated on a policy, is still the greatest amount of indemnity available to an insured. It is, and always will be, the essence of the contract of personal indemnity that is the first party property insurance policy.

© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

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He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com,  the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4