The standard lease for an entire building will require the tenant to either purchase building insurance or reimburse the landlord for premium payments if the landlord buys the insurance. If the tenant chooses to buy the building insurance, this often results in a lower total premium to the tenant as the building's coverage is guaranteed with the tenant's other insurance needs, such as business break insurance, employee compensation, liability insurance and company personal property reporting. This gives rise to a legal question – can the tenant have an insurable interest in properties that it rents out, ie the landlord building?
The standard of insurable interest is well established under California law. The Insurance Rules 281
California courts have ruled that all financial interests are sufficient to create an insurable interest.
[A] an insurable interest exists when "the insured has a direct financial interest in the preservation of the property and … will suffer a financial loss as an immediate and immediate result of this destruction …" 2  The insured's interest in the property must exist when the insurance takes effect and when the loss occurs.
Insurance contracts and California law have broadly interpreted the definition of an interest in real estate that secures an insurable interest. Each holding status, provided that the insured has a tangible financial interest in the property, will support a finding of an insurable interest. 3 Should the insured suffer a loss through the destruction of the insured property, it is irrelevant whether he or she has any title in, pension rights or possession of the property itself. 4 A court, “when determining whether a party has an insurable interest, is obliged to examine the reality, financial or otherwise of a situation rather than just looking at technical concepts of title. 5
Under California law, an insured person does not need to own the property to have an insurable interest in the property. In one case, the court found that an almond processor had an insurable interest in a stock of almonds delivered to its facility by a roasting and dice grain producer because the processor was directly responsible under both agency principles and his contract with the grain manufacturer for loss of almonds during processing. 6 In another, the court held that a holder of a mechanic had an insurable interest in building. 7 In another case, the court held that a tenant-owner association had an insurable interest in the common property held collectively by its individual members. 8 In another, the court considered that a pensioner's interest is insurance. 9 In another, the court held that an insured had an insurable interest in a restaurant he or she bought, even if the sale had not been completed and the title had not been registered in the insured's name. 10
Courts have even held that a tenant has an insurable interest in a tenancy, or even when there is an intention to rent the premises in combination with measures consistent with that intention. 11 I California Food Service Corp. v. Great American Insurance Company for example, a declaration of intent to rent out a building and measures compatible with a tenant created an insurable interest. In that case, the complainant, California Food Service Corporation ("CFS"), signed a letter of intent to purchase the assets of Sandy, a fast food establishment, and adopt Sandy's tenancies. CFS also agreed to assume the obligations under Sandys' lease agreement, including the purchase of fire insurance for the benefit of the landlord. CFS moved into the building, began operations and was issued a fire insurance policy covering the building. After the policy was issued but before the sale of assets was completed, the fire damaged the building. The court found that since CFS had a binding agreement with Sandy & # 39 ;s to assume Sandy's obligations under the lease, which included the purchase of fire insurance for the benefit of the building's owner, CFS, also had an insurable interest in the destroyed premises. 12
As another example, it is according to the law that a parent company has an insurable interest in properties owned by its wholly owned subsidiaries. Even a majority owner of a parent company can be found to have an insurable interest in the property owned by the subsidiary. In this case, the Southern District of California was asked to apply California law to determine whether the majority investor in a parent company had the same insurable interest in property as the parent company's wholly owned subsidiary. 13 In that case, McAdam was an executive member of McAdam & # 39; s Fish, LLC. He was also the largest investor in McAdam & # 39; s Fish, LLC and owned a 22% stake in the company. McAdam & # 39 ;s Fish, LLC wholly owned Charca Fish III, LLC and Charca Fish IV, LLC, who respectively owned the vessels Jessica M and Shirley B. The vessels were insured under an insurance policy issued to McAdam. The ships were damaged and McAdam claimed the ships' damage. The state's national insurance company claimed that McAdam did not have an insurable interest in the vessels because he was not the owner. McAdam claimed that he had an insurable interest because he was the largest investor in the parent company of the wholly owned subsidiaries that owned the vessels. He also claimed that his full-time job and primary source of income run McAdam & # 39; s Fish, LLC. The court agreed with McAdam and applied in California the law that any financial interest creates an insurable interest, found that McAdam had an insurable interest in the vessels.
Consequently, a tenant may actually have an insurable interest in the tenant. If this problem occurs in any of your claims, be sure to push back. Make sure to identify all the reasons why the insured had an interest in the property and present it to the insured.
1 Cal. Ins. Code § 282.
2 California Food Service Corp. v. Great American Ins. Co (1982) 130 Cal.App.3d 892, 897.
3 3 Couch on Ins. § 41:13.
4 3 Couch on Ins. § 41:11.
5 Royal Ins. Co. v. Sisters of Presentation (9th Cir. 1970) 430 F.2d 759, 761.
6 Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 875-76.
7 Hayward Lumber & Inv. Co. v. Lyders (1934) 139 Cal.App. 517.
8 Countrywide Home Loans, Inc. v. Tutung (1998) 66 Cal.App.47 727, 732.
9 Home Savings of America, FSB v. Continental ins. Co (2001) 87 Cal.App.4th 835, 854.
10 Tri-State Mut. Grain Dealers Fire Ins. Co. v. Morris (9th Cir. 1959) 268 F.2d 956.
11 California Food Service Corp. v. Great American Ins. Co (1982) 130 Calc. 3d 892, 897-898; Sam Wong vs. Stuyvesant Ins. Co (1929) 100 Cal. 109, 112.
12 Cal. Food Service at 895.
13 McAdam v. State Nat. Ins. Co (S.D. Cal. 2014) 28 F.Supp.3d 1110.