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Last Post 11/08/2010 3:38 PM by  Ray Hall
Insurable interest
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Leland
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11/08/2010 8:06 AM
    Mr. Smith wants to sell his building with owner financing. He sets up an escrow account and the buyer, Mr. Johnson, makes monthly payments to it. Mr. Smith uses those funds to keep writing checks to his bank. The bank is not told that there is a new buyer/occupant. Neither is the insurance Co. A fire causes damage to the building. Mr. Johnson makes a claim even though his name is not on the policy. The adjuster explains to Mr. Johnson that he is not a named insured. Mr. Smith decides to file the claim instead. Can the insurance company deny Johnson's claim? Can the insurance company deny Smith's claim?

    Scenario #2

    Robert Bippo dies. Bobby Jr. inherits the house. He keeps making the insurance payments but leaves the insurance policy under his daddy's name. A water loss ensues. Can the carrier deny Junior's claim?

    Scenario #3

    Mrs. Contago inherits the house from her deceased husband. Her name is not on the policy. If she has a claim can she get paid?

    ___________________________________________________________________

    some case law examples- if you have a claim on a stolen car that you unknowingly bought, does your insurance co. have to pay you?


    "This Court recently decided the case of Smith v. State Farm Mut. Automobile Insurance Co., 231 So.2d 193 (Fla.1970). In that case we approved the holdings of the First and Third District Courts of Appeal that bona fide purchaser for value of stolen automobiles have an "insurable interest" therein. See, Smith v. State Farm Mutual Automobile Insurance Co., 220 So.2d 389 (3rd D.C.A.Fla.1969); and Skaff v. United States Fidelity & Guaranty Co., 215 So.2d 35 (1st D.C.A.Fla.1968). The district court in the present case distinguishes these cases saying that in each case the insured had an equitable interest in the car because of the money he had paid. This reasoning is not only inaccurate but is also inapplicable to the present case.

    Fla.Stat. § 672.403 (1969) states that a purchaser of goods acquires all title which his transferor had or had power to transfer. In the case of the stolen cars the insured parties could not have any equitable interest therein since the transferors had no power to transfer. Their insurable interest, then, was their right to mere possession against all but the rightful owner. Barnett v. London Assurance Corporation, 138 Wash. 673, 245 P. 3, 46 A.L.R. 526; Norris v. Alliance Insurance Company of Philadelphia, 1 N.J.Misc. 315, 123 A. 762, and Skaff v. United States Fidelity & Guaranty Co., supra, hold that the purchaser of a stolen automobile's right to possession against all but the rightful owner is the right that gives the purchaser an insurable interest. This rule of law was approved by us in Smith v. State Farm Mutual Automobile Insurance Co., supra."

    Grimm v. Prudence Mut. Casualty Co., 243 So. 2d 140, 142-143 (Fla. 1971)(emphasis added).

    Next case: If the policy lists an insured who the agent knows is not the owner, can the real owner still collect on a claim?

      Republic Ins. Co. v. Silverton Elevators, Inc., 493 S.W.2d 748 (Tex. 1973)

    "Carl L. Tidwell was at all times material to this controversy, an officer, director and the general manager of Silverton Elevators, Inc. Silverton owned and furnished to Tidwell a house near its elevators, together with the insurance on the house and on Tidwell's household goods, as part of his compensation as general manager. Since 1964, Republic's local agent had issued and renewed insurance policies in the name of Silverton covering the dwelling and its household goods. It is undisputed that the local agent, who had authority to issue the policies and receive the premiums, knew that the household goods belonged to Tidwell and that Silverton was carrying the insurance for the benefit of Tidwell. On April 17, 1970, a tornado destroyed the house and the household goods.

    On the date of the tornado there was in effect a Texas Standard Fire Policy with Extended Coverage on DWELLING & HOUSEHOLD GOODS in the sum of $10,000 issued by Republic to Silverton for the period of April 20, 1969 to April 20, 1972, insuring against loss from windstorm the specifically described "occupied dwelling" for $7,000 and "household goods . . . while in the described building" for $3,000.00. It is undisputed that Silverton paid the $227.00 premium, and the local agent admitted that at the time he issued the policy he knew the facts heretofore mentioned with respect to actual ownership of the insured property. He testified that he wrote the policy to cover Tidwell's household goods located in the dwelling which Tidwell and his family occupied; that he knew Silverton was carrying the policy on the household goods for the benefit of Tidwell; that when he issued the policy he did not think it made any difference that it was in the name of Silverton because "they were paying the premium"; and that he told Tidwell that the policy covered his household goods both before and after the tornado.

    Republic acknowledged coverage on the house and paid Silverton $7,000 for its damage, but it denied any liability to Silverton or Tidwell on the household goods. Thereupon, Silverton and Tidwell brought this suit against Republic claiming coverage to the limit of the policy ($3,000) on the household goods owned by Tidwell. Republic defended on the grounds that Silverton had no ownership and therefore no insurable interest in the household goods and that the policy as written was limited by its terms to household goods owned by Silverton Elevators, Inc., the named insured."

    Mr. Tidwell's attorney made the argument that the insurance company was estopped from asserting their defense, because the agent knew what was actually going on and who really owned the stuff.

    "Since the policy refers to and clearly purports to cover the household goods located in the specifically described dwelling, we agree with the Court of Civil Appeals that the knowledge of Tidwell's ownership of the household goods by Republic's local agent and his actions with respect thereto were imputed to and binding upon Republic. Issuance of the policy and collection of the premiums with such knowledge operates as a waiver of any requirement that the named insured own or possess a beneficial interest in the insured property. National Fire Ins. Co. of Hartford v. Carter, 257 S.W. 531 (Tex.Comm'n App. 1924, jdgmt adopted); Continental Ins. Co. v. Cummings, 98 Tex. 115, 81 S.W. 705 (1904); Wagner v. Westchester Fire Ins. Co., 92 Tex. 549, 50 S.W. 569 (1899); The Liverpool and London and Globe Insurance Company v. Ende, 65 Tex. 118 (1885); Old Colony Insurance Company v. S. D. Messer, 328 S.W.2d 335 (Tex.Civ.App. 1959, writ ref., n.r.e.); Germania Mutual Aid Association v. Trotti, 318 S.W.2d 918 (Tex.Civ.App. 1958, no writ).

    In the above cases, the named insureds were not the owners or sole owners of the insured properties. In each case, the true owner was known to the insurance agent and was allowed direct recovery, or recovery for his benefit, on the grounds that the insurance company had waived warranties of sole ownership or lack of insurable interest. There is no conflict between the above cases and those which hold that waiver and estoppel cannot operate to bring within the terms of a policy liabilities or benefits which were expressly excepted therefrom, such as liability from injuries due to gunshot wounds in Washington Nat. Ins. Co. v. Craddock, 130 Tex. 251, 109 S.W.2d 165 (1937); loss for injuries while in military service in time of war, as in Ruddock v. Detroit Life Ins. Co., 209 Mich. 638, 177 N.W. 242 (1920); or payment of benefits beyond a specified termination date at age 65, as in Great American Reserve Ins. Co. v. Mitchell, 335 S.W.2d 707 (Tex.Civ.App. 1960, writ ref.). The latter cases recognize that waiver and estoppel may operate to avoid forfeiture of coverage and benefits stated in the policy, but not to add specifically excluded risks or to enlarge the benefits or risks therein set forth. In the present case, plaintiffs seek to recover only on the risk assumed by Republic under the terms of the written policy. Republic's policy insured against the destruction of precisely the same household goods identified in its policy and for which it collected its premiums. There is no evidence that its risk was enlarged because the household goods were owned by Tidwell rather than Silverton.

    Although it is undisputed that Tidwell rather than Silverton owned the household goods in the dwelling when the policy was issued and when the property was destroyed and that they were the household goods intended to be insured, Republic contends that the description, and thus the coverage, was limited by the written policy to household goods owned by Silverton. The effect is to say that the policy covered only non-existent household goods; that even though Republic wrote a $3,000.00 policy on household goods located in the described dwelling, there was never in fact any coverage on anybody's household goods. This is inconsistent not only with the undisputed intention of its own agent but with the provisions of the policy as written. The household goods were referred to on the face of the policy as being located in the dwelling specifically described in the policy."

    Republic Ins. Co. v. Silverton Elevators, Inc., 493 S.W.2d 748, 751 (Tex. 1973)

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    RandyC
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    Posts:197


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    11/08/2010 11:17 AM
    I am very interested in the first case. Before the real estate bubble burst there was a get rich quick method of buying homes that were in distress or slightly upside down in mortgage vs. value. Old mortgages were assumable, but after the days of very low interest rates, the new mortgages contained something called a "due on sale" clause. The balance of the loan could be called due upon sale at the banks option. They could cash in old loans at much lower than current rate.

    Investors that wanted to pick up a distressed home invented something called "subject to". The buyer would take over payments of the old mortgage under a contract "subject to the old mortgage". To avoid triggering the "due on sale" clause, it was necessary to hide their new interest from the mortgage company. Their were many ways to do this, but the most successful way was to pay the old owner (who was often facing foreclosure) some get out of town money. They would pay a few back payments to get the mortgage current and then agree to pay each payment as it came due from then on. The old owner lost his house but would save his credit providing the new owner lived up to his agreement. The new owner would then sell the house to a poor credit risk with a nice down payment and a purchase price a little above market.

    For this to work the buyer had to keep his interest hidden from the mortgage company and from the insurance company who would notify the mortgage company in due couse of a change in ownership...which would trigger the "due on sale" clause.

    This was done in many ways, most of them badly, but the way that seemed to work best (for the buyers) was to set up a trust in the name of the original owner, get themselves declared trustee, and then get the deed of the house signed over to them personally. They would set up a bank account in the name of the trust, but they would write and sign the checks.

    It would seem they would have an insurable interest. It wasn't usually deemed illegal to avoid the "due on sale" clause since it was an option rather than a mandatory escalation of the note. By design the trust account was supposed to continue only long enough to get a new occupant on a lease to purchase into the house and build up his credit until a full purchase could be arranged where all would be disclosed. Obviously, these deals often went bad when the buyer lost control and got behind on hundreds of these "subject to" deals.

    I have wondered how the insurance would work on these deals since I learned of their existence. The insurance on these deals that were set up as trust would appear on the surface to be family affairs, therefore the insurance transferable. Beneath the veil of the trust, the real beneficiary of the trust would be the new "subject to" owner and not family at all, therefore not a proper named insured...or is he as the trustee and sole beneficiary of the trust?

    I am sure someone has had experience with these deals. Prior to the bubble burst there were hundreds of thousands of them done. I look forward to someone with knowledge explaining the insurance ramifications.



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    RandyC
    Member
    Member
    Posts:197


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    11/08/2010 11:23 AM
    Posted By RandyC on 08 Nov 2010 11:17 AM
    I am very interested in the first case. Before the real estate bubble burst there was a get rich quick method of buying homes that were in distress or slightly upside down in mortgage vs. value. Old mortgages were assumable, but after the days of very low interest rates, the new mortgages contained something called a "due on sale" clause. The balance of the loan could be called due upon sale at the banks option. They could cash in old loans at much lower than current rate.

    Investors that wanted to pick up a distressed home invented something called "subject to". The buyer would take over payments of the old mortgage under a contract "subject to the old mortgage". To avoid triggering the "due on sale" clause, it was necessary to hide their new interest from the mortgage company. There were many ways to do this, but the most successful way was to pay the old owner (who was often facing foreclosure) some get out of town money. They would pay a few back payments to get the mortgage current and then agree to pay each payment as it came due from then on. The old owner lost his house but would save his credit providing the new owner lived up to his agreement. The new owner would then sell the house to a poor credit risk with a nice down payment and a purchase price a little above market.

    For this to work the buyer had to keep his interest hidden from the mortgage company and from the insurance company who would notify the mortgage company in due couse of a change in ownership...which would trigger the "due on sale" clause.

    This was done in many ways, most of them badly, but the way that seemed to work best (for the buyers) was to set up a trust in the name of the original owner, get themselves declared trustee, and then get the deed of the house signed over to them personally. They would set up a bank account in the name of the trust, but they would write and sign the checks.

    It would seem they would have an insurable interest. It wasn't usually deemed illegal to avoid the "due on sale" clause since it was an option rather than a mandatory escalation of the note. By design the trust account was supposed to continue only long enough to get a new occupant on a lease to purchase into the house and build up his credit until a full purchase could be arranged where all would be disclosed. Obviously, these deals often went bad when the buyer lost control and got behind on hundreds of these "subject to" deals.

    I have wondered how the insurance would work on these deals since I learned of their existence. The insurance on these deals that were set up as trust would appear on the surface to be family affairs, therefore the insurance transferable. Beneath the veil of the trust, the real beneficiary of the trust would be the new "subject to" owner and not family at all, therefore not a proper named insured...or is he as the trustee and sole beneficiary of the trust?

    I am sure someone has had experience with these deals. Prior to the bubble burst there were hundreds of thousands of them done. I look forward to someone with knowledge explaining the insurance ramifications.




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    Ray Hall
    Posts:2443


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    11/08/2010 3:38 PM
    In the Texas  Sworn proof of loss (and most other states) all people with an interest in the property must be listed as well as all mortgagee's. The short version is TX. ia an "interest state' and some adjuster should ask this question.
    Many years ago TX had a standard endorsement for its standard policy #175 and both the purchaser and seller were named; however if the purchaser was still living in the house that has a loss; all wise adjusters explained this question in the payment section of the closing report.

    Texas is main stream with most all of it,s insurance contracts and case law.
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