Do you have to be named on a property insurance policy to enforce it? The answer in Florida is “no,” so long as you have an insurable interest in the policy.

This issue comes up repeatedly, as many forced placed policies are obtained during the current economic climate. Today, many property owners are behind payments on their mortgages and required insurance. In those instances, most mortgagees have the contractual right to purchase “forced place” property insurance. Although the mortgagee charges the delinquent property owner for the cost of the forced place policy, some mortgagees do not name the property owners anywhere in the policy.

If a loss occurs, does the unnamed property owner have a right to bring suit to enforce the property insurance policy? A recent federal district decision ruled the unnamed property owner has standing to bring the action. In Baltazar v. Balboa Ins. Co., 8:10-CV-2932, 2011 WL 2217332 (M.D. Fla. June 7, 2011), the Court noted the facts and issue raised in this circumstance:

Balboa alleges that Baltazar lacks standing to bring this case because Baltazar is neither a named insured nor an additional insured under the policy… Balboa contends that the insurance policy covering sinkhole damages was procured by …Baltazar’s mortgage company. Baltazar…argues that, regardless of who procured the policy, he has standing because he has an insurable interest in the property in question as the homeowner.

The Court’s analysis was direct and to the point:

Florida Statute § 627.405 provides the basis for standing to sue under an insurance contract.

(1) No contract of insurance of property or of any interest in property or arising from property shall be enforceable as to the insurance except for the benefit of persons having an insurable interest in the things insured as at the time of the loss.

(2) “Insurable interest” as used in this section means any actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage or impairment.

(3) The measure of an insurable interest in property is the extent to which the insured might be damnified by loss, injury, or impairment thereof.

In Florida, “an insurable interest is not determined by the concept of title, but rather whether the insured has a substantial economic interest in the property.” Aetna Ins. Co. v. King, 265 So.2d 716, 718 (Fla. 1st DCA 1972). The promise by the insurance company to pay the mortgagees the extent of their loss may be enforced by a third party beneficiary even if that third party beneficiary possesses no policy of insurance in their name. See Fawkes v. Balboa Ins. Co., Case No. 8:10–cv–2844–T–30TGW, 2011 U.S. Dist. LEXIS 14590, at *7, (M.D.Fla. Feb. 11, 2011) (holding that an insurance policy may be enforced by a property owner even if he possessed no insurance policy in his name); Norfolk & Dedham Mut. Fire Ins. Co., 281 So.2d 373, 375 (Fla. 3rd DCA 1973) (allowing purchaser of property insured under vendor’s fire insurance policy to recover despite not having a policy in his name).

…Baltazar is the homeowner: he therefore has an actual, lawful, and economic interest in the property in question. As defined by Fla. Stat. § 627.405, Baltazar has an insurable interest. This Court thus concludes that Baltazar has standing to bring this case…

I appreciate that many may think that “standing” is a nerdy legal concept. How about a little more pleasurable reflection of us “standing” by each other:

https://youtube.com/watch?v=O4_ghOG9JQM%3Frel%3D0

  • Gary Rowland

    This is a very good and interesting article Chip.

  • Matthew Gold

    Do you think this concept might apply when the buyer of real property, who has no insurance, discovers imediately after closing that a loss occurred prior to closing but after the purchase agreement was signed? Would the buyer in this situation be able to enforce the property insurance policy of the seller?

  • Chip Merlin

    Matthew,

    It might. There are other cases on that matter.

    Purchasers of property should also inspect the property prior to closing. The purchase and sale agreement should reflect when the risk of loss passed from one to another as well as whether there is an assignment of insurance proceeds.

  • Lauren

    I was researching a similar issue regarding insurable interest and came across your article.

    Do you think the Aetna court applied the correct analysis? I notice that the statute reads “actual, lawful, AND substantial economic interest”. What about actual and lawful? Also, Aetna cites to a personal property case (Skaff- stolen automobile) to create its holding. Should it have applied differently for real property?

    Have you read the Peninsular Fire case from the 2nd (166 So. 2d 206)? There the Court found no insurable interest and considers who would have an enforceable interest if an ownership controversy were to arise (seemingly puts forth that an insurer must have a legal interest / title to the property).

    What is your analysis of these two cases together? Also, I am interested in why Aetna did not read the statute with the “and” language- it only addressed one portion.