Insurable Interest and Denial of Coverage
The son of an insured filed an action after the insurer denied his claim under a homeowners policy after a fire had seriously damaged the house that he had inherited. The insurer claimed the son was not an insured person and had no insurable interest in the house. This case is Ramsey v. Allstate Insurance Company, 416 Fed.Appx. 516 (2011). Note that this case was not selected for publication in the Federal Reporter.
Ramsey's father purchased homeowners insurance from Allstate in 1993 and renewed the policy annually until his death in 2002. After the father died, the bank continued to pay the insurance premiums from the son's account and Allstate continued to renew the policy. However, Allstate never named the son as an insured on the policy. There was no evidence that the son ever directly notified the insurer of the father's passing; the son did claim that he informed the bank.
A fire destroyed the house in 2008 and the insurer then took possession of the house, inspected it, and boarded it up. However, the insurer told the son that it would not cover the fire loss because the policy was still in the father's name. When the son filed a lawsuit, the district court ruled in favor of the insurer. This appeal followed.
The United States Court of Appeals, Sixth Circuit, noted that according to the terms of the policy, the insurance contract with the father terminated at the end of the first premium period following his death. The son could not renew the policy on behalf of the father because the father had passed away. Additionally, the son could not assume the policy because the contract contained an anti-assignment clause, and provisions prohibiting assignment are valid and enforceable. Therefore, the appeals court ruled that the district court correctly ruled that the son did not have any viable claim under the express terms of the father's policy.
The son argued that he became an insured person under the policy when he moved into the house before the father died. The court said this was true, but the insurance contract terminated at the end of the premium period following the father's death, and the son ceased to be an insured person under the policy when the policy terminated.
The appeals court ruled that the insurance policy prohibited assignment and the son did not have a contractual right to coverage for his claim under the terms of the homeowners policy. The district court's ruling in favor of the insurer was reversed on different grounds, but the anti-assignment clause of the policy was upheld.
Editor's Note: It is interesting that the U.S. Court of Appeals held to such a strict reading of the policy provisions in this case in order to deny coverage for the son, considering that it is generally accepted that heirs have an insurable interest in property. However, the policy in question did declare that the policy could not be transferred to another person without the consent of the insurer, and that after the death of the named insured, coverage continued for only a limited time. Based on the facts in this case, the insurance contract itself did not grant any rights to the son when it came to a question of coverage.