The concept of insurable interest is important in assessing the strength of a party’s property insurance claim and whether one is entitled to proceeds from insurance. In Florida, an insurable interest is defined as 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.”1 The true measure of an insurable interest in real property is the extent to which the insured might be injured or damaged by the injury, loss, or other impairment.2 The time frame to determine a party’s insurable interest is at the time of the loss.3 Therefore, in a nutshell, it comes down to what is the party’s stake in the property at the time of the loss?
This may seem straightforward, however what happens when a foreclosure judgment is entered against a party and the party is seeking insurance coverage for a loss that occurred prior to the foreclosure? In Conyers v. Balboa Insurance Company,4 a homeowner’s property which sustained damage caused by sinkhole activity was secured by a mortgage at the time of the loss. When the homeowner failed to maintain hazard insurance, the bank purchased a lender-placed insurance policy which showed the bank as the named insured and the homeowner as the “borrower.” A final judgment of foreclosure was entered against the homeowner prior to filing suit against the insurance company. In support of its holding that the homeowner had an insurable interest in the property, the District Court stated:5
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. See Baltazar v. Balboa, No. 8:10–cv–2932–T–33MAP, 2011 WL 2217332, at *2 (M.D.Fla. June 7, 2011) (citing Aetna Ins. Co. v. King, 265 So.2d 716, 718 (Fla. 1st DCA 1972)). In the instant case, the Conyers were the owners of the property at the time of the loss and therefore had an actual, lawful, and substantial economic interest in the safety or preservation of the subject property. Therefore, as defined by Section 627.405, the Conyers have standing to bring this action as third-party beneficiaries.
* * *
In Florida, as explained above, a party’s insurable interest relates to its actual economic interest in the subject property at the time of the loss. Subsequent foreclosure proceedings do not extinguish such an interest unless the underlying debt was discharged in full. See In re Cayer, 150 B.R. 829, 831 (Bankr.M.D.Fla.1993) (“ ‘The right to receive the insurance proceeds was fixed at the time of the loss, and subsequent foreclosure proceedings could not have extinguished this right unless the debt evidenced by the note and mortgage was discharged in full.’ ”) (quoting Sea Isle Corp. v. Hochberg, 198 So.2d 336, 337 (Fla. 3d DCA 1967)).
Balboa’s evidence demonstrates that, upon the final judgment of foreclosure, the Conyers owed the mortgagee a total of $121,410.50. (Foreclosure Judgment Doc. # 27–5 at 2). Even assuming, as the Conyers claim, that the total amount of the proceeds from the judicial sale of the property were applied to reduce this debt (Doc. # 29 at 8), the Conyers still owe the mortgagee $106,410.50. As explained in In re Cayer, a mortgagee’s right to receive insurance proceeds is fixed at the time of the loss and subsequent foreclosure proceedings do not extinguish this right unless the mortgage debt is discharged in full. 150 B.R. at 831. Additionally, as provided by Section 627.405, the Conyers have standing to enforce Balboa’s promise to pay the mortgagee the extent of its loss in the subject property. This Court finds no authority indicating that either the Conyers’ insurable interest or the mortgagee’s right to receive insurance proceeds has been extinguished by the subsequent foreclosure proceedings. Thus, Balboa is not entitled to summary judgment on this issue.
If you find yourself in the position where your insurance company has denied your property damage claim on the basis that you lack an insurable interest in the property, you should consult with an experienced policyholder attorney for an opinion.
1 Fla. Stat. § 627.405(2).
2 Fla. Stat. § 627.405(3).
3 See Section 627.405(1) Florida Statutes (which sets forth who has standing to sue under an insurance contract: “[n]o 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.” (Emphasis Added)
4 935 F. Supp. 2d 1312 (M.D. Fla. 2013).
5 Conyers, at 1315-16 (Emphasis added).