Monday, August 20, 2012

When Someone Other Than Your Named Insured Co-Owns the Insured Building

Gilbert v. Allstate Ins. Co.

(2nd Dept., decided 5/15/2012)

This is a bit of back fill.  But important back fill.

You insure one person but find out after a fire that destroyed the insured dwelling that another person, who is not listed or named on the policy, is listed as a co-owner on the property's deed.  There's no mortgagee.  Do you:

a.  pay 100% of the dwelling loss to just your named insured?
b.  pay 100% of the dwelling loss to both your named insured and the other co-owner? -or-
c.  pay 50% of the dwelling loss to just your named insured?

If you were Allstate, you do c., pay 50% of the dwelling loss to just your named insured.  And in the recent opinion of the Second Department, Appellate Division, you would be correct in doing so.

The plaintiff owned property as a tenant in common with a business partner, who was not a party to this action. In 1996 the plaintiff procured a policy of fire insurance on the property from Allstate solely in his own name. On October 2, 2009, the premises were destroyed by a fire. Allstate paid the plaintiff one-half of the value of the property on the ground that the plaintiff had only a one-half insurable interest in the property. The plaintiff, arguing that a tenant-in-common has an undivided right to the full use, enjoyment, and possession of the entire property (and therefore had a 100% insurable interest in that property), brought this action to recover the full value of the destroyed premises. The Supreme Court, Orange County (Slobod, J.), denied the plaintiff's motion for summary judgment on the issue of liability and granted Allstate's cross motion for summary judgment dismissing the complaint.

In AFFIRMING the grant of summary judgment to Allstate, the Appellate Division, Second Department, succinctly reasoned:
Insurance Law § 3401 limits a contract or policy of insurance to the insured's "insurable interest." When two cotenants own real property which is damaged by a fire and insurance is procured in the name of only one contenant, recovery under the policy is limited to the insured cotenant's one-half interest in the real property (see Graziane v National Sur. Corp., 120 AD2d 773, 775 [1986]; Krupp v Aetna Life & Cas. Co., 103 AD2d 252 [1984]).


Heidi said...

The loss that is the subject of this case involved total destruction of the property. What if the damages were only partial and the amount of those damages is less than the 50% interest of the named insured? Would an insurer, therefore, owe only 50% of the damages?

Roy A. Mura said...

I don't think the amount of loss or damage matters to the holding, Heidi. If the non-listed co-tenant does not otherwise qualify for coverage as a named insured (like a resident spouse might), then yes, the insurer could probably take the position that only 50% of the damage was owed to its named insured.

It may be important to note that Allstate's HO policies contain an insurable interest condition that reads something like this:

Insurable Interest and Our Liability
In the event of a covered loss, we will not pay for more than an insured person’s insurable interest in the property covered, nor more than the amount of coverage afforded by this policy.

Anonymous said...

This is a CRAZY DECISION - I would bet dollars to doughuts that Allstate collected premiums as if they were insuring 100% of the property!!!!! So they are winning both ways, collecting full premiums but only paying 1/2 coverage!

Roy A. Mura said...

Anon -- Understand that Allstate collected premiums thinking the named insured(s) was(were) the full owner(s) of the property, so yes, it likely collected premiums based on that presumption. It's the insured's responsibility to advise his/her/its insurer that there is less than a 100% insurable interest. Insurers aren't required to pull deeds when then insure real property -- nor should they be.