Insurable Interest And Employers

Here is an interesting case from the 14th Court of Appeals.  It is a 1998, opinion styled, Tamez v. Certain Underwriters at Lloyd’s.

Two employees of a Stop-n-Go (NCS) store were killed while on duty.  NCS, as the employer had life insurance policies on the employees and made a claim for benefits and were paid by Lloyd’s.  The representatives of the estates of the employees sued NCS and Lloyd’s.

Summary judgments were granted in favor of NCS.

NCS and Lloyd’s argued that the estates had no standing to challenge NCS’s insurable interest, saying it is well-settled that only the insurer can challenge the existence of an insurable interest.

The estates contend a long line of Texas cases require an insurance beneficiary to possess an insurable interest in the insured’s life and that NCS and does not meet the test regarding who has an insurable interest.  NCS first argues that the Texas Insurance Code does not require an insurable interest.  Alternatively, NCS claims it has an insurable interest in the lives of its employees.

Bluntly expressed, insurable interest is determined by monetary considerations, viewed from the standpoint of the beneficiary.  Would he regard himself as better off from the standpoint of money, would he enjoy more substantial economic returns should the insured continue to live; or would he have more, in the form of the proceeds of the policy, should she die?  Therefore it is said that if the situation is such that he might be led to conclude that he would profit by her death, the policy contract is void as to him since the public has a controlling concern that no person have an interest in the early death of another, an interest that may give rise to a temptation to destroy her life.

In the absence of any proof to the contrary, it is presumed that a person who applies for and obtains insurance on his or her own life is in fact the insured.  It may be shown, however, that the insured was in fact merely a nominal party and that the application was instigated and the premiums paid by the beneficiary who had no insurable interest in the life of the insured.  In such case, the policy will be held void if under the applicable law it would have been void had the beneficiary applied as the insured.

Under the circumstances in this case, case law regarding insurable interest is applicable.  Case law holds there are three classes of beneficiaries with an insurable interest in the life of the insured.  The only classification that applies to NCS is whether it has a reasonable expectation of pecuniary benefit or advantage from the continued life of its employees.  NCS argues it does have an expectation of pecuniary benefit in that without employees, NCS would not generate revenue and would cease to exist as a viable entity.  NCS claims this is a fact of such common knowledge that a court may take judicial notice of it.  While it may be true that NCS, like any other company, needs employees to generate revenue, NCS does not dispute that the basis for purchasing this insurance was to pay any benefits to the families of the deceased and to pay for costs associated with defending a lawsuit.  In any event, most cases addressing this issue have found that an employer does not have a pecuniary interest in the continued life of its employee, unless that employee is crucial to the operation of the business.

Based on this courts review of the case law, it concluded that NCS had no insurable interest in the life of its employees.  Therefore the policies were void as to NCS.