Nicole Vinson | Property Insurance Coverage Law Blog | March 19, 2016
Researching on a case this week, I came across a favorable ruling for a policyholder where the court ruled that the check from the insurance company should not be 50% of the value, but should be for 100% of the loss.1 Consider the case of Mr. Franks. Mr. Franks bought a house in Georgia and put a lot of work into the home and made sure he paid for adequate insurance. The home he originally purchased was for just $60,000 but he quadrupled the value after a large addition and other improvements over the years. When Mr. Franks bought the home, he was the only person on the mortgage, but once he closed, he conveyed the property to himself and his domestic partner, Sterling Morrison. Franks and Morrison were never married.
The classification and how Franks transferred the home is important because the pair didn’t own the house as tenants in common, or 50/50, as some may describe it. Instead, each was a co-owner with 100% of the property interest should the other person die. This is called joint tenants with rights of survivorship.
After Mr. Franks added Morrison to the house, he inquired about adding Morrison as a named insured, but the insurance company’s agent said it was unnecessary because only Mr. Franks was on the mortgage.
Eight years after the inquiry to the agent, the property was destroyed by fire. Franks made a claim with his insurance company, Georgia Farm Bureau (“GFB”). GFB honored the claim but when it came time to cut the insurance proceeds, GFB paid off the first and second mortgage for the dwelling loss, but tried to short change Mr. Franks. Under the policy, GFB agreed that another $142,000.00 was due but only sent Mr. Franks around $71,000.00.
GFB took the position that Mr. Franks should have only received the benefit of half of the remaining proceeds because he was not a sole owner.
GFB contends that Franks’ “one-half undivided interest in the [p]roperty as a joint tenant” with Morrison means that Franks’ “interest in the [p]roperty is fifty percent.” Further, GFB contends that under Georgia’s Insurable Interest Statute, OCGA § 33–24–4, and other applicable law, an insured whose legal ownership interest in insured property is less than 100 percent has an insurable interest only to the same extent as the insured’s fractional ownership interest.
The court did not agree with GFB and went through a very detailed analysis of insurable interest and explained rational and facts of other cases that came before Mr. Franks. The court explained that for Mr. Franks, once any insurable interest is shown, the policy controls how policyholders are paid and not Georgia’s Insurable Interest Statute OCGA Statute 33-24-4.
The court explained “Franks’ ownership interest, though shared, is not fractional, but, rather, undivided; accordingly, GFB’s construction cannot stand.12 Because Franks is not, by virtue of his joint ownership of the insured property, limited to recovering one-half of the difference between the policy limits for the dwelling and the amount paid to discharge the secured debts ($246,000 minus $104,175.65 divided by 2, equaling $70,912.18), as GFB contends.
I also think it is important to list the test that the court gave for finding an insurable interest here, but please note that this varies by state.
The test of insurable interest in property is whether the insured has such a right, title, or interest therein, or relation thereto, that he will be [benefitted] by its preservation and continued existence, or suffer a direct pecuniary loss from its destruction or injury by the peril insured against.
(Citation and punctuation omitted.) Id. Thus, Georgia law defines an “insurable interest” in property as “any actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage or impairment.” OCGA § 33–24–4(a). Under OCGA § 33–24–4, therefore, having title or legal ownership is not the sine qua non of having an insurable interest, so long as the insured has some lawful interest which “may be slight or contingent, legal or equitable.” (Punctuation and footnote omitted.)
The opinion did not address it but my guess is that the check that was re-issued was for the full amount and was issued to both Franks and Morrison.