Life Insurance And Insurable Interest

Who has an insurable interest in the life of someone else?

The Texas Supreme Court in 1968, declared that a creditor may designate itself the beneficiary of a policy purchased by it on the life of its debtor, but its insurable interest is limited to the loan balance at the insured’s death; the rest of the policy proceeds belong to the insured’s estate.  The opinion is styled, McAllen State Bank v. Texas Bank & Trust Co.

In 1942, the Texas Supreme Court said a person that has a reasonable expectation of pecuniary benefit or advantage from the insured’s continued life has an insurable interest.  This was in Drane v. Jefferson Standard Life Ins. Co.

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 employees’ families was not sufficient to show an insurable interest.  This was stated in the 1998, 14th District opinion, Tamez v. Certain Underwriters at Lloyds.

In the 1998, Tyler Court of Appeals opinion, Stillwagoner v. Travelers Ins. Co., the policy paid the employer $200,000, whether it suffered any loss at all; thus, 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 insurance interest rule aims to discourage.  Therefore, the employer had no insurable interest in the employee’s life.

The 1942, Drane case showed that 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 Drane 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.”