In August, the U.S. Court of Appeals addressed whether a homeowners’ property insurance policy was rendered void after the insureds lost the home in foreclosure, yet continued to reside in the home and suffered a loss.1

Fred and Debbie Baptist purchased their property insurance policy in October 2006. In November 2008, they lost their home to foreclosure, however they did not notify their insurer and continued to occupy the home. On December 9, 2011, the bank which foreclosed on the home obtained a judgment evicting the insureds from the home. The insureds had to vacate the home by January 13, 2012, however the home was damaged by a fire on December 27 and 28, 2011. The insureds made a claim with their insurer for contents coverage for the December 2011 fire and during the insurer’s investigation it discovered that the insureds no longer owned the property. The insureds had renewed their policy twice (for the 2009-2010 and 2010-2011 policy periods) and sent checks for the premium to the insurer. It is also interesting to note that the fire claim was not the only loss the insureds suffered. They also filed post-foreclosure claims for wind and hail damage in April 2010, and for an unrelated fire in May 2010.

The insurer filed suit in the U.S. District Court for the Northern District of Mississippi, seeking a declaratory judgment that the policies it issued after the foreclosure were void because the insureds had no insurable interest in the property. The insurer also made a claim to recover payments it made on the insured’s claims in 2010 and 2011. On a summary judgment motion, the insurer argued that the insureds made a material misrepresentation by failing to inform the insurer of the foreclosure sale. The district court agreed and held that the insureds had no “insurable interest” in the property because they did not have a right to renew the policy after they lost ownership and the renewed policy was void ab initio. The Fifth Circuit Court of Appeals affirmed the district court’s judgment and stated:

Although the parties devote much of their briefing to whether the Baptists maintained an insurable interest in the property sufficient to sustain their policy’s effectiveness after the foreclosure, we need not address this issue to conclude that the district court’s judgment must be affirmed. Our de novo review [footnote omitted] satisfies us that the district court’s ultimate conclusion was correct because, even assuming arguendo that the Baptists maintained an insurable interest sufficient to sustain their policy—in their personal property, contemplated as “contents,” for example—their renewals of their policy constituted their affirmations to Nationwide of their initial application for insurance, material portions of which were no longer true. The Baptists’ application reflects that the home would be owner occupied, and includes both the Baptists’ declaration that the facts stated on the application are true and their request that Nationwide issue “the insurance and any renewals thereof in reliance thereon.” By renewing their homeowner’s policy when they no longer owned their home, the Baptists made a misstatement of material fact that entitled Nationwide to rescind the policy. [footnote omitted] Accordingly, the judgment of the district court is AFFIRMED. (Emphasis added).


1 Nationwide Mut. Ins. Co. v. Baptist, No. 13-60726, 2014 WL 3882888 (5th Cir. Aug. 7, 2014).

  • Thx for the info.

    Could you inform me and the rest of your readers on coverage, as it pertains to a claim on property that has been sold. If a claim for property damage was not filed prior to the closing of a property, does the original owner still have claim rights after the property has changed hands? Can the owner transfer claim rights as part of the transaction to the new owner? Can an assignment of rights contract be performed during the closing on the property with a third party being named as the beneficiary, i.e. Restoration Contractor, PA, Attorney?

    Your article reminds me of a few situations after Ivan and Katrina in which I was involved where the NFIP policy was totaled out while the HO policy was left grossly under valued. The property owner sold the property, as is, for penny’s on the dollar, leaving what I realized was a large balance of uncollected benefits on the table from the HO coverage.

    Thx-