When considering an insurable interest question in an insurance claim, there are two important times to look at: when the policy is issued and the time of loss. This is because the policyholder must have an insurable interest at the time the insurance policy is taken out and at the time of loss. A Florida case demonstrates this point.

The case is Morgan v. American Security Insurance Company.1 While the Morgans were still married, Dorothy Morgan purchased insurance on their home from American Security. The policy provided that the term “insured” included the named insured – Dorothy Morgan – and any relative residing in the household. The policy defined the terms “you” and “your” as the “named insured” in the declarations and the spouse if a resident of the same household. Shortly after, the Morgans divorced. They entered into a separation agreement and Dorothy quitclaimed her interest in the house to her husband as she was required to do by the agreement.

James Morgan purchased insurance on the home from another insurance company. The house was destroyed by fire and James Morgan’s insurance company tendered policy limits in payment of the loss. When the Morgans sought to recover on Dorothy Morgan’s insurance policy, American Security refused to pay and they sued to recover. James Morgan testified that he had no involvement in the purchase of the American Security policy because he was working out-of-town when it was purchased. He explained that his job took him out of town quite a bit and was not at home continuously.

The trial court entered summary judgment for American Security concluding, among other things, Dorothy Morgan had no insurable interest in the property at the time of the loss because of her prior conveyance of her interest in the property to James Morgan. The trial court also concluded James was not an insured under the policy because, at the time of loss, he was not a spouse or relative of Dorothy’s residing in her household.

The appellate court concluded and held that:

The insured must have an insurable interest in the property at the time he takes out the insurance and at the time of the loss. Fire Insurance is considered a personal contract in that the hazards the insurance company elects to assume run to the individual rather than upon the property. If the insured parts with all interest in the property prior to the loss, it is not covered. A sale by the insured between the date of the policy and the date of the loss is considered to avoid protection. Further, the insurable interest of the parties to an insurance contract is determined by the facts existing at the time of the loss. Accordingly, we agree with the trial court that Dorothy Morgan’s transfer of her insurable interest in the property before the loss avoided protection.

Under the facts of this case, Dorothy Morgan had transferred all interest in the property under the terms of the divorce agreement before the loss happened. Dorothy Morgan had an insurable interest in the property at the time the policy was taken out in her name, but not at the time the loss occurred. So even though she had an interest in it when she obtained the policy, the fact that she had transferred her interest before the loss occurred and did not have any economic interest in the preservation of the property was critical to the Court’s determination that she could not recover on the policy.

1 Morgan v. American Security Ins. Co., 522 So.2d 454 (Fla. 1st DCA 1988).