_1_ Insurable Interest

List the (5) legal bases for Insurable Interest

Ownership Interest in Property Contractual Obligations Exposure to Legal Liability Factual Expectancy Representation of Another Party

Legal Basis for Insurable Interest factual expectancy

in this instance the party need only demonstrate potential financial harm resulting from event to be insured (focus is on insured's financial position)

Insurable Interest in P&C

insurable interest must be present at time of loss

whether or not an insurable interest exists depends on:

relationship between the claiming party and the property, person, or event that is the subject of the insurance policy

Insurable Interest in Life Insurance

the beneficiary must have an insurable interest in the life of the insured when the policy is purchased (but no necessarily at time of the insured's death)

List and describe the (4) scenarios under which property may be jointly owned

*Joint Tenancy* - each owner (Tenant) owns the entire property and has a right of survivorship *Tenancy by the Entirety* - joint tenancy by a husband and wife (each owns the entire property and has right of survivorship) *Tenancy in Common* - concurrent ownership of property, in equal or unequal shares by two or more owners. Each party's insurable interest is limited to the owner's share of the property. No survivorship rights! *Tenancy in Partnership* - concurrent ownership by a partnership and its individual partners or personal property used by the partnership. All partners have an insurable interest in property used and a right to survivorship.

Legal Basis for Insurable Interest Contractual Obligations

*contractual rights regarding people* - one party has right to bring claim against second party without entitling the first party to any specific property that belongs to the second party if you don't pay credit card, credit card company can bring claim, but cannot just take your property *contractual rights regarding property* - allow one party to bring a claim against specific property held by a second party if you don't pay your mortgage, the lender can foreclose on your house

Why is insurable interest required?

*it supports the principle of indemnity* - only those who suffer financial loss are indemnified *it prevents the use of insurance as a wagering mechanism* - it prevents gambling on an event for which the insured would not suffer a loss and then profit when the loss occurs *it reduces moral hazard incentive that insurance may create for insured* - reduced because cannot profit from loss

Joint Ownership Scenarios: with survivorship rights without survivorship rights

*with survivorship rights* Joint Tenancy Tenancy by the Entirely Tenancy in Partnership *without survivorship rights* Tenancy in Common

define: factual expectancy

A situation in which a party experiences an economic advantage if an insured event does not occur or, conversely, economic harm if the event does occur.

define insurable interest

An interest in the subject of an insurance policy that is not unduly remote and that would cause the interested party to suffer financial loss if an insured event occurred

When more than one party has an insurable interest in the same property, what strange situation may result?

The sum of all insurable interests may exceed the value of the property... this does not mean that the amount paid out in the event of a total loss would exceed the value of the property!

Legal Basis for Insurable Interest Representation of Another Party

insurable interest when one party acts as a representative of another party. Representative can obtain insurance on property for benefit of property's owner. Example: Agents - may insure property for principal's benefit Bailees - insure's property for bailor's benefit. If bailor's property becomes damaged or destroyed, bailee pays insurance proceeds to bailor Trustees - may insure property for the trust's benefit...all proceeds must go to the trust

When determining whether a loss is covered under a property insurance policy, the analysis must determine which two things?

is the claimant an insured under the policy? does the insured have an insurable interest in the property?

Insurable Interest - Legal Requirement

it is a matter of law...it exists even if the policy provisions fail to address this issue policy provisions frequently limit insureds right to recovery to be no more than their interest in the covered property at the time of loss

Legal Basis for Insurable Interest Exposure to Legal Liability

legal responsibility for property owned by others...insurable interest based on legal liability for damage to owner's property (full value even use value) examples hotelier has insurable interest in guests' property tenant has insurable interest in portion of premises he/she occupies contractor has insurable interest in building under construction

Legal Basis for Insurable Interest Ownership Interest in Property

self explanatory, ownership of property creates insurable interest in that property. May include intangible property (copyrights, patents, trademarks, intellectual property, stock certificates) so long as property has economic value

Joint Ownership Scenarios: where insurable interest may exceed total value of property insured where insurable interest may NOT exceed total value of property insured

where insurable interest may exceed total value of property insured Joint Tenancy Tenancy by the Entirely Tenancy in Partnership where insurable interest may NOT exceed total value of property insured Tenancy in Common