Property insurance does not insure property. It insures persons who have an interest in real estate or personal property and who risk losing that property to unknown or contingent hazards. Most property insurances insure against all direct risks of physical loss that are not excluded or the risk of loss due to hazards mentioned in the insurance such as fire, lightning, windstorms or hail. The risk of loss is spread among the insurer’s customers so that the cost of the insurance is affordable. It is called “first party” insurance against property risks where the insured (the first party to the insurance contract) has an interest and from whose loss the insured would be harmed. The insurer, which is considering old ways of describing contracting parties, is considered to be the other party to the contract.
Only an insured of an insurance that also has an insurable interest – an interest where the insured will in any way be injured as a result of an injury due to a danger insured against – before he or she can pick up. Failure to be an insured listed on the insurance or by definition – regardless of the extent of the insurable interest – deprives the person of the right to the benefits of the insurance. Failure to maintain an insurable interest – even if it is stated as an insured by the insurance – deprives the person of the right to the benefits of the insurance.
In order to receive that compensation, the insured must also fulfill the promises he or she made to prove his or her damage and cooperate with the insurer’s investigation. That’s really all that insurance is: promises from the insured and the insurer. As long as both keep their promises, there will be no problems and no need for anyone to try fraud. A fraudulent insurance claim is one made by a person who does not keep the promises made when the insurance was acquired.
AGREEMENT ON PERSONAL REMUNERATION
First party property insurance is a personal injury compensation agreement. The insurer promises to compensate the first party, the insured, in the event that the insured suffers damage as a result of any of the dangers that the wording of the insurance insures against. Insurance does not follow the ownership of the land. The insurer gives a promise to the first party, the insured, that if there is a loss of property that the insured has an interest in, to pay compensation for the damage.
The “elementary principle of insurance law that fire insurance” is an agreement on personal compensation, “not an agreement from which a profit is to be realized.” [Cigna Property & Cas. Ins. Co. v. Verzi, 684 A.2d 486, 112 Md.App. 137 (Md. App. 1995)]
A first party’s property policy is considered by courts that are called upon to interpret the terms of the policy, an agreement on personal damages. It is a contract made with the protected individual. The insurance does not come with the property as an incident to anyone who can buy that property. If it works at all, it goes as a contract issue for the transfer of the insurance. [Estate of Cartwright v. Standard Fire Ins. Co., No. M2007-02691-COA-R3-CV, 2008 WL 4367573, *2 (Tenn. Ct.App. Sept. 23, 2008) (noting that “[t]The insurance contract is also a purely personal agreement between the insured and the insurance company, and is not linked to or runs with the ownership of the insured’s property but an agreement on the transfer of the insurance. ” Fulton Bellows, LLC v. Federal Ins. Co., 662 F.Supp.2d 976 (ED Tenn., 2009).
Think, for example, in practice of a fictional wife Jones who is allowed to live rent-free in a home owned by her children. Mrs. Jones buys, in her name alone, a home insurance policy, which insures her against the risks of losing the structure and its contents. If a fire destroys the house, Mrs Jones can recover because her interest in the house is an “insurable interest”. This means that she has an interest in the property that allows her to recover from the loss of property if it is lost, damaged or destroyed. Mrs. Jones’ children, the owners of the home, also have an insurable interest in the home, but are not insured according to Mrs. Jones’ insurance and may not reclaim any income from her insurance.
In California, as in most states:
[i]In common parlance we say that a house is insured, but strictly speaking it is not the house but the owner’s interest in what is insured, and whether that interest is based on a legal title, a reasonable title, a lien or such other legal interest which leads to a direct and certain financial damage to the insured by destroying it, he has an insurable interest therefrom. ” [Davis v. Phoenix Ins. Co., 111 Cal. 409 (Cal. 1896).]
Only a person who is both insured and who has an insurable interest can receive compensation from a first-party property insurance. IN Russell vs. Williams, 58 Kal. 2d 487, 374 P.2d 827, 24 Cal. Rptr. 859 (Cal. 1962), the California Supreme Court ruled:
It is a long-standing principle that a fire insurance does not insure the property covered by it, but is a personal agreement that compensates the insured for damage as a result of the destruction of or damage to his interest in that property.
The property is not insured against destruction. The insured is guaranteed against loss, to the extent of his insurable interest, which does not exceed the amount stated on the insurance declaration page as the liability limit promised by the insurer. Since the improvements and improvements installed in the building passed to the owner at the end of a lease, in part as consideration for the rent, the tenant could not sell them, remove or regain their value. The insured therefore had a limited insurable interest: the right to use them until the lease expires while the owner would have a 100% insurable interest in the property. [Lighting Fixture Supply Co., Inc., v. Fidelity Union Fire Ins. Co., 55 F.2d 110 (5th Cir. 1932); Grange Mutual Casualty Company, v. Central Trust Company, N.A, 774 S.W.2d 838 (6th Cir. 1989)]
A fire insurance is always a personal indemnity agreement entered into with the protected individual and does not accompany the property as an incident to any person who can buy that property. If it works at all, it goes as a contract issue for the transfer of the insurance.
As a personal indemnity agreement, the insurance only insures the person mentioned in the insurance against certain risks of loss of property of which that person has an interest. A person who has an interest in the property but is not named as an insured can not recover under the insurance. Similarly, a person named on an insurance policy who has no interest can not recover.
No one can claim compensation on a first party’s property insurance if they do not have an insurable interest in the property and are named as insured, or by definition are insured in the insurance.
Some properties are held for less than a simple ownership fee. Because the insurance is a personal agreement; when there is only a lifetime, both the lifetime tenant and the remaining insurable interests in the property. If the lessee provides the insurance for his personal compensation, the remaining person who has not taken out the insurance has no reason to complain, even if the income from the lessee’s insurance contract exceeds the amount that would compensate him for his personal damage. The income comes from the insurance contract, not from the property, and does not replace the destroyed property.
It can generally be said that anyone has an insurable interest in property that benefits from its existence or would suffer loss of its destruction. An insurable interest in property is any right, benefit or advantage arising out of or dependent thereon, or any liability in respect thereof, or any relation to or matter therein of such a nature that it may be so affected by the intended danger that it directly condemn the insured.
The examination of whether an insured has an insurable interest in property is whether the insured has such a right, ownership or interest therein, or a relation thereto, that he will benefit from its preservation and continued existence or suffer a direct financial loss from its destruction. . or damage to the insured risk. [Hyman v. Sun Ins. Co., 70 N.J.Super. 96, 100 (App. Div. 1961)) (internal quotations omitted); Margin Holdings, Ltd., LLC v. Franklin Mut. Ins. Co. (N.J. Super. App. Div. 2022)]
The term “interest”, used in the phrase “insurable interest”, is not limited to property or ownership in the subject of the insurance. An insurable interest in property may arise from any liability that an insured incurs in connection therewith. Such liability may arise by law or agreement, or may be established by law from the obligations that the insured undertakes.
In Georgia, an insurable interest means any actual, lawful and material economic interest in the security or preservation of the insured object free from loss, destruction or economic damage or deterioration. [O.C.G.A. § 33-24-4(a); Zurich Am. Ins. Co. v. Steve Ayers Constr. Co. (N.D. Ga. 2022)]
Insurable interest is a cornerstone of the concept of insurance. The requirement of an insurable interest protects the insurer against the risk that arises if the person who will benefit from the loss of the insured property has no interest in the property not being destroyed. [Woods v. Independent Fire Insurance Co., 749 F.2d 1493, 1496 (11th Cir. 1985)] It is well established in the United States that having ownership or ownership is not the only basis for having an insurable interest in property. [Brown v. Ohio Cas. Insurance Co., 239 Ga.App. 251, 253(2), 519 S.E.2d 726 (1999)] Rather, the examination of the insurable interest in property if the insured has such a right, title or interest therein, or a relation thereto, is that he will benefit from its preservation and continued existence, or suffer a direct economic loss from its destruction or damage of the insured hazard. [Ga. Farm Bureau Mut. Ins. Co. v. Franks, 320 Ga.App. 131, 739 S.E.2d 427 (Ga. App. 2013)]
In order to have an insurable interest, the insured must suffer a “direct financial loss” from the subject of the contract; the loss can not be indirect or sentimental. ” [A.B. Petro Mart, Inc., 892 N.W.2d at 465; see also 14 Mich. Civ. Jur. Insurance § 135] An insurable interest in an insurance is not determined by the label attached to the insured’s property but by whether the insured will suffer financial damage as a result of the property being destroyed. [Sam D Mkt. 1 v. Selective Ins. Co. of S.C. (E.D. Mich. 2021)]
California defines by law “insurable interest” as follows:
Any interest in property, or any relation thereto, or liability in respect thereof, of such a nature that a considered danger may directly condemn the insured, is an insurable interest. [California Insurance Code Section 281]
“Condemn” means “[t]o cause loss or damage; damn. “Damnify, Black’s Law Dictionary (11th edition 2019). Consequently, there is an insurable interest where the insured has such a relationship with the property that it would suffer damage if the property was damaged by the risk against which it is insured. [Colo. Hosp. Serv., Inc. v. Auto-Owners Ins. Co., No. 14-cv-01858-WJM-NYW, 2015 WL 6098639, at *2 (D. Colo. Oct. 16, 2015) (citing Bird v. Cent. Mfrs. Mut. Ins. Co., 120 P.2d 753, 755 (Or. 1942); Wildwood Townhome Homeowners Assn. v. Travelers Prop. Cas. Co. of Am. (D. Colo. 2022)]
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Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and firstname.lastname@example.org.
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