After my last blog about insurable interests according to California case law, I received a request to research and present the same topic under Florida case law. Specifically I noted that home purchasers may not have proper insurance policies when they purchase homes with deeds held in trusts, corporations, or other business entities such as an LLC (limited liability company). Often, investors or buyers do this to protect their assets but a problem arises when the home held in the business is not the named insured under the policy. In Florida, the case law is very similar to that of California in that the proper named insured should match up with the owner of the deed of the property to have an active and proper policy where there is an insurable interest.
In a more simple analogy of why when transferring a deed that the named insured must be adjusted immediately, in Morgan v. American Security Insurance Company,1 an action was instituted seeking to collect proceeds of fire policy after a house was destroyed by fire. A wife's transfer of her interest in property pursuant to divorce decree prior to fire loss avoided protection of fire policy issued to wife, as she no longer had an insurable interest in property after she conveyed her interest to the ex-husband pursuant to divorce decree. The ex-husband was not insured under the policy because at time of loss he was not a spouse or relative of his ex-wife residing in her household as required by terms of policy. Essentially since a policy was not taken out under the name of the deed holder, no insurance policy was in effect for the residence.
The insured must have
- an insurable interest in the property at the time he or she takes out the insurance ; and
- an insurable interest the time of the loss.
These two things must both be present for proper homeowner's insurance coverage. Under Florida Statutes §§ 627.405(2) and 627.405(3), public policy renders an insurance policy invalid when the insured has no insurable interest in the property or the risk insured, on the grounds that it constitutes a wagering contract.
Each year when a homeowner's policy renews, it would be good form for insurance brokers and agents to send a checklist to their clients to see if any changes in title, marital status, ownership or even remodeling impacts an insurance policy. We often worry about carrying the proper policy limits but do not think twice about whether the insurance purchased is proper because of an insurable interest change to title may affect the viability of an insurance policy. Ultimately, it's the insured that should be the most vigilant in keeping an agent or broker updated because no notice to the insurer of the change just means heartache for the insured if the policy isn't in effect after a loss.