Recently, I received a question from a public insurance adjuster who asked, “what happens to my client’s claim if he is listed as the named insured but does not own the property?”

Finding coverage for a named insured in Florida requires an analysis of the standard for insurable interests set by Florida Statute § 627.405:

(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.

An insured without either legal or equitable title to a property can bring a claim for damages and may succeed if one can show actual, lawful and substantial economic interest in the property.

The First District Court of appeals addressed this type of issue in Aetna Insurance Company v. King.1 The facts involved make or break a case dealing with insurable interest, but for the King family the facts proved the insured retained an insurable interest.

The Kings owned a grocery store insured with Aetna Insurance Company. In 1964, Mr. and Mrs. King were both in declining health and unable to devote the necessary time to their grocery business so they conveyed the deed for property to their two daughters. What is interesting is that after the daughters took title to the grocery store, they set up a special bank account to deposit the grocery store proceeds. This special account was then used by the daughters to pay the medical care for their parents. In 1967, the daughters also entered into a Memorandum of Understanding that specifically allocated all of the grocery business proceeds for the care and support of their mother.2 The grocery store was then leased to a third party, but the proceeds continued to pay for care of Mrs. King, who was repeatedly hospitalized between 1964 and 1967.

In 1967, the grocery store building and all of its contents were destroyed by fire. The claim was submitted to Aetna but Aetna denied the claim alleging Mrs. King did not have an insurable interest in the property.

However both the trial and the appellate court found that Mrs. King had insurable interest in the property.

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

It was determined that Mrs. King had a substantial economic interest in the grocery store because her financial livelihood was directly connected to the profits of the grocery and the funds were used pay for her repeated hospitalizations

While this case helped Mrs. King, it is important to remember that these types of cases are fact specific. Policyholders can limit insurable interest problems by aligning their property interests with their insurance policies. In cases of future planning, some insured may be thinking ahead and change title on a property to the children, but forget to align or make additions to the insurance policies. Making sure the named insureds listed on property insurance policies include the legal owners of the property can save unnecessary issues relating to insurable interest rights.

1  Aetna Insurance Company v. King, 265 So.2d 716 (Fla.1st DCA 1972).
2 The written appellate opinion does not mention Mr. King, who may have passed away at the time the Memorandum was written.

  • We had this issue come up as a defense at the last minute in a trial in January against a large insurer. The court agreed. Other related issues are:

    Pacific Mut. Life Ins. Co. of Calif v. Henderson, 45 F.2d 587, 588 (5th Cir. 1930) (“The burden was on the insurance company to sustain the defense asserted by it to the effect that the policy was a wagering contract, and this burden it failed to meet.”).

    Sun State Roofing Co., Inc. v. Cotton States Mut. Ins. Co., 400 So. 2d 842, 844 (Fla. 2d DCA 1981) (holding a fact question existed as to an insurable interest for an insured who had the gratuitous use of one-third of a building).

    Schlehuber v. Norfolk & Dedham Mut. Fire Ins. Co. 281 So. 2d 373 (Fla. 3d DCA 1973) (“Fla.Stat. § 627.405 sets out by way of negative statement the proposition that a contract of insurance of property may be enforced for the benefit of persons having an insurable interest in the property. Further, the term insurable interest is defined as an ‘economic interest in the safety or preservation of the subject’ at the time of the loss.”

    Stanley Fine Furniture, Inc. v. North River Ins. Co. 411 So. 2d 210 (Fla. 3d DCA 1982) (insured was entitled to purchase insurance for the benefit of property owners but risk of loss was excluded from coverage).

    Other states are in agreement:
    Jam Inc. v. Nautilus Ins. Co., 128 S.W.3d 879 (Mo. App. 2004). (a shareholder may have an insurable interest in the property because, at both the time of the issuance and renewal of the policy and the time of the loss, it was solely [the shareholder’s] responsibility to procure property insurance on the building for the benefit of the corporation. . . . This court has recognized that where a party has a contractual obligation with the property owner to maintain insurance for the full value of the property, the party’s “subsequent risk of loss for any failure to maintain the insurance may well have created an insurable interest in the [party] for the policy limits.”) (citing Gorman v. Farm Bureau Town & Country Ins. Co. of Mo., 977 S.W.2d 519, 526 (Mo. App. 1998)); Luchansky v. Farmers Fire Ins. Co., 515 A.2d 598, 599 (Pa. Super. Ct. 1986) (“one who makes a legally enforceable agreement to obtain insurance on property for the benefit of another has an insurable interest supporting a contract of insurance of the property even in his own name”); Collins v. Quincy Mut. Fire Ins. Co., 256 S.E.2d 718, 721-22 (N.C. 1979) (insured’s managerial responsibility of property, including the maintenance of insurance, sufficient to constitute an insurable interest in the property).

    According to the insurer, it is going to appeal this issue to the Eleventh Circuit.