Life Insurance Where the Beneficiary No Longer Has Insurable Interest

What happens when a beneficiary has an insurable interest when the life insurance policy is obtained but later on, that insurable interest no longer exists?  That question is answered in an 1894, opinion from the Texas Supreme Court styled, Cheeves v. Anders.

Anders was the Administrator of the Estate of the deceased, L.B. Chilton.  Chilton and Cheeves were business partners and Chilton took out the life insurance policy for the benefit of Cheeves due to this partnership interest.  Later the partnership was dissolved whereby Chilton sold his interest in the partnership to Cheeves.  The partnership had paid for the life insurance policy.

This Court started its opinion by stating the law in this State. “It is against the public policy of this state to allow any one who has no insurable interest to be the owner of a policy of insurance upon the life of a human being.”

In this case, the insurance company owes the life insurance proceeds irregardless of who is entitled to the proceeds.  The issue is who gets it, Cheeves or the Estate.

The language of the assignment made by Chilton to Cheeves was sufficient to convey to the latter all the interest of the firm in this policy.  This brings the Court to the inquiry as to what interest the firm of Cheeves & Chilton had in this policy at the date of the dissolution.  The Court would not undertake to enumerate the different phases of facts in which the firm might be interested in such a policy, nor when it might be regarded as assets of the firm for the whole amount.  It is sufficient to say that no such state of facts is alleged as gives to the firm such right, nor to the claimant, Cheeves, any right by reason of a liability for the debts of the firm.  The answer shows that Chilton did not owe the firm any remaining debt, and that the property was more than sufficient to pay all firm debts, for Cheeves assumed all such debts, and, in addition, paid to Chilton several thousand dollars for his interest therein.  The firm had no right to the policy, as such.  The answer, however, does allege that the premiums upon the policy, to amount of $1,180, were paid by the firm out of its assets; and this would create a charge upon this policy in favor of the firm, with the right to be reimbursed, with interest, out of the proceeds of the policy, the same as if it had been paid by a creditor whose debt had been paid, or when the debt was not equal to the amount named in the policy.  This right existed in the firm at dissolution, and, by the transfer of Chilton, passed to Cheeves.  The facts upon which the right arises are alleged in the answer, and there is a prayer for general relief, which was sufficient to entitle Cheeves to whatever the law would accord him upon the alleged facts.  It was error to sustain the general demurrer to this answer, because it showed a right in the defendant Cheeves to some relief, although not to the whole amount in controversy.