What IS An Example Of An Insurable Interest?

A 1938, opinion from the Amarillo Court of Appeals helps answer the above question.  The case is styled, Smith v. Metropolitan Life Ins. Co. et al.

This lawsuit is a contest over the proceeds of a life insurance policy in the sum of $500 issued upon the life of John Wesley Smith by Metropolitan.  At the time the policy was issued the insured was an employee of Southern Pacific Railway Company, but prior to his death, he had been retired by the railway company and collecting a $40 a month pension.

The record reveals that in June, 1927, the insured was married to Jessie Smith, who was plaintiff in the trial court.  Long prior to the issuance of the policy the insured had ceased to live with the Smith, although they were never divorced.  The policy was originally payable to Emaline Bell and Ella White, who were shown by the record to be the nieces of the insured.  In March, 1936, the insured designated his niece, Ella White, as the sole beneficiary in the policy, such designation having been authorized by the terms of the policy.  The contest over the proceeds of the policy was therefore between the Smith, and Ella White joined by her husband, Rolly White.  The insurance company acknowledged its liability upon the policy, paid the $500 into the registry of the court and was therefore discharged with $50 attorney’s fee allowed it as a stakeholder in the controversy.  The trial court rendered judgment for the White, from which judgment Jessie Smith appealed.

The policy in question provided in the event there was no beneficiary at the time the same became payable that such insurance should be paid to the “wife or husband, if living, of such Employee * * *.”  Smith contends that Ella White had no insurable interest in the life of the insured and sought to recover either under the above provision of the policy or under the law of descent and distribution.

It appears from the record that the insured was an old man and in bad health.  He apparently had no home of his own.  At intervals for many years prior to his death he lived with the nieces.  In March, 1936, before his death in November following, he made an agreement with Ella White, as found by the jury upon sufficient testimony, to the effect that if his niece and her husband would give him a home and care for him during his illness, he would make such niece the sole beneficiary in the policy.  Ella White was thereupon made the sole beneficiary in the policy.  The jury also found upon sufficient testimony that Ella White performed her part of the agreement.  The testimony further reveals that each month the insured contributed certain sums out of his pension money to the support of his niece.  It was also shown that such niece paid many bills in behalf of the insured.  On the whole the testimony shows that the arrangement made between the parties was conducive to the best interests of both the insured and the beneficiary.  There is no intimation in the evidence of any bad faith or fraud upon the part of the nieces in the arrangement made between them and the insured.  As one evidence of such good faith upon the part of the nieces, the testimony shows that Ella White had pledged about one-half of the proceeds of the insurance money to the undertakers for the expense of the burial of the insured.

The rule in Texas is that no one without an insurable interest in the life of the insured may be the owner of an insurance policy on the life of a human being, and should such person be made a beneficiary in a policy even by the insured himself, the beneficiary would hold the proceeds as a trustee for the benefit of those entitled by law to receive the same.

The judgement of the trial court was affirmed.