Ownership of business personal property is required to trigger coverage and payment after a loss under most business income loss provisions. Notwithstanding this general rule, an insured may recover for a loss without necessarily having title to business personal property, so long as the insured can establish that it had an insurable interest in the non-owned property. The “insurable interest” doctrine, however, has its limits and it is usually a fact specific issue.

For example, in Tucci v. Hartford Fin. Services Group, Inc., No. 08-4925, 2011 WL 2555379 (D.N.J. June 27, 2011), the insured leased his land to a Howard Johnson Motor Lodge hotel franchise. Howard Johnson built and operated buildings and entered into a management agreement with an entity called Vraj Brig PA, LLC (“Vraj Brig”), under which Vraj Brig assumed management and operational control over the premises. In addition to operating the two hotels, Vraj Brig also leased space in one of the buildings to a restaurant operator. Vraj Brig owned the furniture and appliances in the hotel properties, including hotel room beds and laundry machines. The owner of the restaurant owned the furnishings and equipment of the restaurant.

After many decades of maintaining this business relationship, the owner evicted the long-term tenants for material breach of their lease. Upon taking possession of the property, the owner discovered that the hotel buildings had been vandalized and that furnishings and fixtures he expected to be there had been removed.

The owner filed a claim for vandalism, but the “ownership” issue ended in court.

During litigation, the owner argued that the movable furnishings and trade fixtures owned by Vraj Brig and the restaurant owner should be covered under his policy as business personal property. The owner alleged that while he may not have had actual ownership of or legal title to the personal property of Vraj Brig and the restaurant owner, he had an “insurable interest” in them. A federal court in New Jersey, however, was not inclined to stretch the definition of “insurable interest”

The New Jersey Supreme Court has held that in certain circumstances, an individual may have an insurable interest in property that he or she does not technically own. Miller v. New Jersey Ins. Underwriting Ass’n, 82 N.J. 594 (1980). There, the Court held that for an individual holding an insurance policy governing property he or she does not own, “[t]he extent of coverage would be measured by the reasonable expectations of the insured, taking account of events subsequent to the time of the loss .” Id. at 602

Plaintiff argues that the circumstances prior to September 1, 2006 created in him a reasonable expectation of retaining this property despite the fact that he did not own it. He argues that this interest began when Hartford issued its expanded coverage of the hotel premises because Plaintiff requested and paid premiums on a policy that covers up to $3,500 per room of the hotel to cover the contents of each room.

The Court finds that, to the extent that Plaintiff had such an expectation at all, no reasonable factfinder could conclude it was a reasonable one as required under Miller. First, the Court notes that there is undisputed testimony that Plaintiff was aware that Vraj Brig claimed ownership of the furnishings and fixtures of the hotel. Indeed, there is undisputed testimony that Plaintiff was even offered the opportunity to buy or rent the property from Vraj Brig in the weeks immediately prior to September 1, 2006, which he rejected.

The Court finds that it would not be reasonable for anyone in Plaintiff’s position to expect to be able to make use of goods he did not own, that he knew were being removed by the true owner, and that he had declined the offer to purchase or rent. Consequently, the Court concludes that Plaintiff’s business personal property coverage is limited to those items of property that fit within the ordinary meaning of the definition of “covered property” in his policy, which excluded property owned by residents or tenants of the Plaintiff.

This issue is never simple. Chip’s blog Title to Property Does Not Determine Insurable Interest should also be considered when determining whether an insured has an insurable interest in non-owned property.

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.

  • Stephen Sarasohn

    Most business income policies are triggered by “loss of or damage to property at premises described in the declarations.” It’s not necessary that the insured own it or that it even be personal property. Building damage alone can trigger a tenant’s income claim.

  • Daniel Friedman

    I have always used the standard that if a fixture or improvement was built in and not expected to be taken along if the lesee moved out, or if moving it would seriously damage the covered property to which it was attached,it was part of the building and if it was movable it was contents and clearly the property of the tenant.
    Daniel