What Is An Insurable Interest

Arlington insurance lawyers need to understand what an “insurable interest” is when it comes to making a claim. A 1999, Austin Court of Appeals opinion gives some guidance about this issue. The style of the opinion is, Valdez v. Colonial County Mutual Insurance Company. Here is some of the relevant information from the case.
Valdez purchased an insurance policy from Colonial. The Colonial policy was a standard Texas automobile insurance policy which insured Valdez 1992 Plymouth. Later, Valdez sold and transferred title of the vehicle to his adult son, Rene. Rene obtained new financing for the vehicle and Valdez notified Colonial that Mercantile Bank was the new lienholder of the automobile. Valdez however did not notify Colonial of the change of title to his son, Rene. But, Colonial’s change form did not request that information.
Rene worked in Mexico City and left the car with Valdez who continued to use the vehicle and pay the policy premiums. Valdez renewed the policy. More than a year after Rene bought the car, the vehicle was stolen while parked outside Valdez’s residence. Valdez filed a claim that Colonial refused to honor. Colonial filed suit seeking a declaratory judgment that Valdez did not have an insurable interest in the stolen vehicle and that Colonial had no insurance coverage obligations under an automobile insurance policy issued to Valdez. The trial court granted summary judgment in favor of Colonial. This appeal followed.
The Austin Appeals Court reversed the summary judgment and remanded the case back to the trial court. The Austin Court of Appeals stated that for Valdez to recover under the automobile insurance policy, he need only have an insurable interest in the vehicle. Ownership is not required. “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.” This was stated as the law in the 1963, Texas Supreme Court case, Smith v. Eagle Star Insurance Company. This Court of Appeals noted that while an insurable interest is not dependent on an absolute right to ownership of or possession of property, and while neither legal nor equitable title is necessary, a person must have such a right of interest as the law will recognize and protect. If a claimant cannot suffer any pecuniary loss or derive any benefit from the property, he has no insurable interest. This Court of Appeals held that because there was evidence that Valdez was potentially liable for the damage and or loss of the vehicle and Valdez had exclusive right to possession, use or control of the vehicle, there remained a material fact dispute concerning whether Valdez had an insurable interest in the vehicle at the time of the loss. Therefore, Colonial was not entitled to a summary judgement and the case should go forward.
This case gives some insight into how Texas courts look at the “insurable interest” issue and is a good case to be read for an attorney faced with this issue.