Life Insurance Policies – Insurable Interests

Most people living in Arlington, Grand Prairie, Dallas, Fort Worth, Mansfield, Irving, DeSoto, Cleburne, Weatherford, and all the other places in Texas, will have some form of life insurance on their lives. It may be a policy from work, or a policy thru their bank, or a policy they have purchased through their insurance agent. The question becomes; Who can you take a life insurance policy out on and who can be named as a beneficiary in the policy? When a spouse is the person who is insured or the person who is the beneficiary under the life insurance policy there is not usually a problem. But what if it is someone else?
An insurable interest is what is required. Or an expectation of a pecuniary benefit. So, who has an insurable interest or an expectation of a pecuniary benefit?
The Texas Supreme Court in 1942, in the case, Drane v. Jefferson Standard Life Insurance Company, stated; “A person that has a reasonable expectation of pecuniary benefit or advantage from the insured’s continued life has an insurable interest.”
Here are a couple of examples to explain.
In 1998, the Houston Court of Appeals [14th Dist.] discussed in Tamez v. Certain Underwriters at Lloyds, London Int’l Acc. Facilities, that the mere existence of an employer/employee relationship is never enough to give the employer an insurable interest in the employee’s life. Employers who bought life insurance policies on their regular employees did not have insurable interests based on an expectation of revenue or business generated by the employees, unless the employees were crucial to the business. The employers’ financial interest in having money to defend any wrongful death suit by the employee’s families was not sufficient to show an insurable interest.
This same principle was discussed by the Tyler Court of Appeals in, Stillwagoner v. Travelers Insurance Co., in 1998. In Stillwagoner, the policy the employer stood to gain a great deal from its wager on its employee’s life. So viewed, the policy was a wagering contract on the lives of the insured, one of the evils the insurable interest rule aims to discourage. Therefore, the employer had no insurable interest in the employee’s life.
The second example comes from the 1942 Texas Supreme Court case, Drane v. Jefferson Standard Life Insurance Company.
In the Drane case, although not related by blood or marriage to Harry Ezell, Jr., nor indebted to him in any way, his godmother Dorothy Drane named him as beneficiary in two policies. Upon her death, the executor of her estate, her brother, asserted that Ezell had no insurable interest. The facts showed that Miss Dane had bought clothes for the boy for fifteen years, had paid for his medical care, had cared for him while his mother was ill, had taken him on vacations, and sadly was killed in a wreck as she drove to visit him his freshman year in college, “taking him a radio, a cap and an apple pie.” The court concluded that Ezell did have an insurable interest based on a reasonable expectation of pecuniary benefit and advantage from Miss Drane’s continued life. “We think that when Dorothy Drane was killed ‘his temporal affairs, his just hopes and well-grounded expectations of support, of patronage, and advantage in life’ were impaired … It is inconceivable, under the facts of this record, that he would ever have been tempted to destroy her life in order to collect the proceeds of the two policies in suit.”
The Drane case is an unusual case but is a good example of “expectation of pecuniary benefit.” Anyone finding themselves in the position of being challenged as a beneficiary of an insurance policy should immediately consult with an experienced Insurance Law Attorney to protect their rights. And keep in mind that you may find yourself in a position where you need to challenge the right of someone else being improperly named as a beneficiary in an insurance policy.