Insurable Interest

What if someone in Weatherford, Mineral Wells, Aledo, Willow Park, Azle, Hudson Oaks, Millsap, Brock, Springtown, Cool, or anywhere else in Parker County has insurance on a house and the house burns down – do they automatically get paid the insurance on the house? The answer is – It depends.
To be able to recover on an insurance policy, the person suffering the loss must have an insurable interest in the property that is insured. The Dallas Court of Appeals issued an opinion in 1993, that is still good law. The style of the case is, William T. & Elaine Jones v. Texas Pacific Indemnity Company.
It is a summary judgment case. The Jones sued Texas Pacific on an insurance policy. The summary judgment was granted in favor of Texas Pacific because the court said the Joneses could not recover insurance proceeds on property which they did not have an insurable interest to.
As background, the Joneses owned their home subject to Henry and Diana Martin’s mortgage interest. They insured their home with Texas Pacific. The policy listed the Joneses as the “Named Insureds” and the Martins as “Mortgagee[s].” When the Joneses defaulted on their mortgage payments, the mortgagees foreclosed. The Joneses remained in the home as tenants at sufferance. Eleven days after foreclosure, the home burned.
Texas Pacific paid the Joneses for content loss and additional living expenses. It reimbursed the Martins for the dwelling damage. The Joneses sued on the policy to collect on the dwelling damage.
Texas Pacific claimed the Joneses were not owners, thus could not collect.
The Joneses contended that although they no longer owned the property, they still had an insurable interest and were entitled to the insurance proceeds. Because the foreclosure divested the Joneses of right, title, and interest in the property, the Joneses could not show any loss.
In discussing this case, the court stated the law as it relates to this situation:
A party must have an insurable interest in the insured property to recover under an insurance policy. It is not necessary that the party own the property to have an insurable interest. An insurable interest exists when the insured derives pecuniary benefit or advantage by the preservation and continued existence of the property or would sustain pecuniary loss from its destruction. If a claimant cannot suffer any pecuniary loss or derive any benefit from the property, he has no insurable interest.
The claimant has the burden of proving an insurable interest.
Applying the law to the facts of the case, the court stated that, under the Jones-Martin deed of trust, the Joneses became tenants at sufferance after the foreclosure. As tenants at sufferance, the Joneses were subject to immediate eviction. They had no future legal interest in the dwelling, and diminished motive and opportunity to protect the property. The Joneses did not suffer any pecuniary loss in the dwelling from the fire or receive any benefit from the dwelling. They had no insurable interest in the dwelling.
This case is pretty clear cut. But that is not always the case. Whenever there is any doubt about the right to insurance proceeds, an experienced Insurance Law Attorney should be consulted.