Following up on Sunday’s post, The Insurance Checklist–Insurable Interest and Address of the Risk, and while waiting for the politicians to decide how much our rates may go up in the following year, as indicated in yesterday’s post, A Big Week for Texas and Florida Politics of Insurance, here are some cases that explain insurable interest.

What would happen if you purchased a stolen car? You do not have title, but can you have an insurable interest? The Florida Supreme Court has said, yes.

"This Court recently decided the case of Smith v. State Farm Mut. Automobile Insurance Co., 231 So.2d 193 (Fla.1970). In that case we approved the holdings of the First and Third District Courts of Appeal that bona fide purchaser for value of stolen automobiles have an "insurable interest" therein. See, Smith v. State Farm Mutual Automobile Insurance Co., 220 So.2d 389 (3rd D.C.A.Fla.1969); and Skaff v. United States Fidelity & Guaranty Co., 215 So.2d 35 (1st D.C.A.Fla.1968). The district court in the present case distinguishes these cases saying that in each case the insured had an equitable interest in the car because of the money he had paid. This reasoning is not only inaccurate but is also inapplicable to the present case.

Fla.Stat. § 672.403 (1969) states that a purchaser of goods acquires all title which his transferor had or had power to transfer. In the case of the stolen cars the insured parties could not have any equitable interest therein since the transferors had no power to transfer. Their insurable interest, then, was their right to mere possession against all but the rightful owner. Barnett v. London Assurance Corporation, 138 Wash. 673, 245 P. 3, 46 A.L.R. 526; Norris v. Alliance Insurance Company of Philadelphia, 1 N.J.Misc. 315, 123 A. 762, and Skaff v. United States Fidelity & Guaranty Co., supra, hold that the purchaser of a stolen automobile’s right to possession against all but the rightful owner is the right that gives the purchaser an insurable interest. This rule of law was approved by us in Smith v. State Farm Mutual Automobile Insurance Co., supra."

Grimm v. Prudence Mut. Casualty Co., 243 So. 2d 140, 142-143 (Fla. 1971)(emphasis added).

A Texas Supreme Court case, Republic Ins. Co. v. Silverton Elevators, Inc., 493 S.W.2d 748 (Tex. 1973) seems to have found an insurable interest where none actually existed:

"Carl L. Tidwell was at all times material to this controversy, an officer, director and the general manager of Silverton Elevators, Inc. Silverton owned and furnished to Tidwell a house near its elevators, together with the insurance on the house and on Tidwell’s household goods, as part of his compensation as general manager. Since 1964, Republic’s local agent had issued and renewed insurance policies in the name of Silverton covering the dwelling and its household goods. It is undisputed that the local agent, who had authority to issue the policies and receive the premiums, knew that the household goods belonged to Tidwell and that Silverton was carrying the insurance for the benefit of Tidwell. On April 17, 1970, a tornado destroyed the house and the household goods.

On the date of the tornado there was in effect a Texas Standard Fire Policy with Extended Coverage on DWELLING & HOUSEHOLD GOODS in the sum of $10,000 issued by Republic to Silverton for the period of April 20, 1969 to April 20, 1972, insuring against loss from windstorm the specifically described "occupied dwelling" for $7,000 and "household goods . . . while in the described building" for $3,000.00. It is undisputed that Silverton paid the $227.00 premium, and the local agent admitted that at the time he issued the policy he knew the facts heretofore mentioned with respect to actual ownership of the insured property. He testified that he wrote the policy to cover Tidwell’s household goods located in the dwelling which Tidwell and his family occupied; that he knew Silverton was carrying the policy on the household goods for the benefit of Tidwell; that when he issued the policy he did not think it made any difference that it was in the name of Silverton because "they were paying the premium"; and that he told Tidwell that the policy covered his household goods both before and after the tornado.

Republic acknowledged coverage on the house and paid Silverton $7,000 for its damage, but it denied any liability to Silverton or Tidwell on the household goods. Thereupon, Silverton and Tidwell brought this suit against Republic claiming coverage to the limit of the policy ($3,000) on the household goods owned by Tidwell. Republic defended on the grounds that Silverton had no ownership and therefore no insurable interest in the household goods and that the policy as written was limited by its terms to household goods owned by Silverton Elevators, Inc., the named insured."

In many states, Republic Insurance Company would win. Texas is just one of those states where you never can be sure, and a very clever attorney for the policyholder came up with a unique argument regarding waiver and estoppel as it applies to agents of the insurer and the Texas state mandated forms of insurance. Here is the legal discussion:

"Since the policy refers to and clearly purports to cover the household goods located in the specifically described dwelling, we agree with the Court of Civil Appeals that the knowledge of Tidwell’s ownership of the household goods by Republic’s local agent and his actions with respect thereto were imputed to and binding upon Republic. Issuance of the policy and collection of the premiums with such knowledge operates as a waiver of any requirement that the named insured own or possess a beneficial interest in the insured property. National Fire Ins. Co. of Hartford v. Carter, 257 S.W. 531 (Tex.Comm’n App. 1924, jdgmt adopted); Continental Ins. Co. v. Cummings, 98 Tex. 115, 81 S.W. 705 (1904); Wagner v. Westchester Fire Ins. Co., 92 Tex. 549, 50 S.W. 569 (1899); The Liverpool and London and Globe Insurance Company v. Ende, 65 Tex. 118 (1885); Old Colony Insurance Company v. S. D. Messer, 328 S.W.2d 335 (Tex.Civ.App. 1959, writ ref., n.r.e.); Germania Mutual Aid Association v. Trotti, 318 S.W.2d 918 (Tex.Civ.App. 1958, no writ).

In the above cases, the named insureds were not the owners or sole owners of the insured properties. In each case, the true owner was known to the insurance agent and was allowed direct recovery, or recovery for his benefit, on the grounds that the insurance company had waived warranties of sole ownership or lack of insurable interest. There is no conflict between the above cases and those which hold that waiver and estoppel cannot operate to bring within the terms of a policy liabilities or benefits which were expressly excepted therefrom, such as liability from injuries due to gunshot wounds in Washington Nat. Ins. Co. v. Craddock, 130 Tex. 251, 109 S.W.2d 165 (1937); loss for injuries while in military service in time of war, as in Ruddock v. Detroit Life Ins. Co., 209 Mich. 638, 177 N.W. 242 (1920); or payment of benefits beyond a specified termination date at age 65, as in Great American Reserve Ins. Co. v. Mitchell, 335 S.W.2d 707 (Tex.Civ.App. 1960, writ ref.). The latter cases recognize that waiver and estoppel may operate to avoid forfeiture of coverage and benefits stated in the policy, but not to add specifically excluded risks or to enlarge the benefits or risks therein set forth. In the present case, plaintiffs seek to recover only on the risk assumed by Republic under the terms of the written policy. Republic’s policy insured against the destruction of precisely the same household goods identified in its policy and for which it collected its premiums. There is no evidence that its risk was enlarged because the household goods were owned by Tidwell rather than Silverton.

Although it is undisputed that Tidwell rather than Silverton owned the household goods in the dwelling when the policy was issued and when the property was destroyed and that they were the household goods intended to be insured, Republic contends that the description, and thus the coverage, was limited by the written policy to household goods owned by Silverton. The effect is to say that the policy covered only non-existent household goods; that even though Republic wrote a $3,000.00 policy on household goods located in the described dwelling, there was never in fact any coverage on anybody’s household goods. This is inconsistent not only with the undisputed intention of its own agent but with the provisions of the policy as written. The household goods were referred to on the face of the policy as being located in the dwelling specifically described in the policy."

Republic Ins. Co. v. Silverton Elevators, Inc., 493 S.W.2d 748, 751 (Tex. 1973)

This case is about as close as it comes to a Court saying, "The premiums were paid on property you insured. Don’t haggle about the technicalities, pay because they got destroyed." I bet that Texas insurance agents, knowing of this case law, have pretty good memories about customers buying insurance for the benefit of others with actual ownership.