Eagle and Interstate companies are currently experiencing a dilemma in regards to their insurance holdings. Both companies hold an insurance policy on a warehouse that was destroyed in a fire. The property had recently exchanged ownership and was destroyed by a fire shortly thereafter. At the time of the fire both companies held a policy on the property. The dilemma is what company can recover the loss.
The only entity that can collect on the casualty loss of the warehouse is the owner of that warehouse. According to Caitlin (2012) “the existence of an insurable interest in the life of the insured is a basic prerequisite to the enforceability of any policy of life insurance.” Interstate is the owner and is therefore the only entity able to collect. Eagle will not be able to recover any losses even though they have an insurance policy on the warehouse. This is because Eagle has no level of insurable interest in the warehouse any longer. However, it is possible that Eagle is entitled to a refund on all premiums paid because the insurance company had experienced absolutely no risk of loss under that particular policy. The risk assumed by Good Hands was only experienced with the policy held by Interstate.
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An entity has an insurable interest when they suffer a financial loss due to some type of catastrophe such as a flood or fire. Therefore, that entity has a financial gain realized from maintaining the property and covering that property with insurance. In the case of Eagle there is no material interest in maintaining an insurance policy as they are experiencing no risk as the previous owner. Good Hands should have recognized the insurance duplication and voided the policy for Eagle as they had no risk of material business loss after the sale of the property to Interstate. The level of insurable interest is not determined simply by what entity pays the premium; it is also determined by who is taking the material business risk.
- Caitlin. (2012). THE ELUSIVE INSURABLE INTEREST REQUIREMENT: ARE YOU SURE THE INSURED IS INSURED?. Real Property, Trust & Estate Law Journal, 47(1), 409-473.
