An excellent post by Brandon McWherter, of the Tennessee Insurance Litigation Blog, correctly noted an important point regarding insurable interest and title. The general rule is that title is not necessary to establish an insurable interest in property.
In Recent Developments – Adams v. Tennessee Farmers Mutual Insurance Company, McWherter noted:
[L]egal title is not required in order to have an insurable interest in real property. Tennessee Farmers argued that an insured’s transfer of legal title to a family member mandated a finding that there was no insurable interest. The Court of Appeals disagreed, finding that any interest in property, even the mere right to use property, is enough for a finding that there is an insurable interest. All that is required is that the insured benefit from the property’s continued existence or suffer a loss as a result of its destruction.
The Adams Court also ruled in favor of the policyholder on the issue of the duty to inform a change in ownership:
[T]he Court of Appeals rejected the proposition that an insured has a duty to notify an insurer of a change in ownership of the insured property when the change in ownership occurs after the policy is issued. …After surveying several jurisdictions across the country, the Court of Appeals concluded that there is no such duty, reasoning “the burden is more appropriately placed on the insurer to specify when the insured will be required to notify it of changes in circumstances after the policy is delivered.” Because the policy at issue in this case had no such provision, there was no duty to disclose the change in legal ownership subsequent to the issuance of the policy.