Skillful Estate Planning Can Conflict with Homeowner’s Insurance Coverage: Understanding the Meaning of “Insurable Interest”

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

Effective estate planning frequently involves listing assets like residential property as assets that are part of a trust or that are held by a limited liability company (LLC), corporation, or other form of business structure.  This type of arrangement can protect assets from creditors, reduce tax liabilities, and facilitate a seamless transfer of assets to heirs and beneficiaries.  Despite the estate planning benefits of listing assets in the name of a trust or business entity, these strategies can backfire unless insurance policies are carefully reviewed.  Florida law requires that the insured party under a homeowner’s policy have an “insurable interest” in the premises.  This rule is designed to prevent people who are unconnected to a property from purchasing insurance to essentially gamble on recovering insurance payouts if a property is damaged.

The Florida 1st District Court of Appeals case of Morgan v. American Security Insurance Co. provides an example of the importance of ensuring that the named insured matches the individual or entity listed on title for the property.  Although this case involved the question of an insurable interest in the context of a divorce, the issues apply equally to cases where title on a home is held in trust or by a business entity. 

A wife purchased a homeowner’s insurance policy in her name while she was married and living with her husband.  Shortly after securing the policy, the married couple separated and entered into a separation agreement.  Under the terms of the separation agreement, the wife quit claimed her interest in the home to her husband.  The wife also agreed in the separation agreement to assign her interest in the insurance policy to her husband.  After the couple’s divorce, the house was destroyed in a fire, and the husband filed a claim. 

The trial court ruled for the insurance carrier in several respects. The trial court found that any alleged assignment of the insurance policy between the wife and her former spouse was not effective because the she did not obtain the consent of the insurer as required by the policy.  The judge also sided with the insurer in finding that the husband did not have an insurable interest in the property and upheld summary judgment regarding the denial of coverage. 

The appellate court acquiesced with the reasoning of the trial judge in noting that the wife had no insurable interest in the property at the time of loss because she conveyed the property to her husband.  Further, the husband was not “an insured” under the policy because he was not a “spouse” or “relative” living in the home of the policyholder at the time of the loss.  The court emphasized that the policyholder must have an insurable interest in the property both at the time the coverage is obtained and at the time of loss.  However, the insurable interest of the parties is evaluated at the time of loss, so the prior transfer by the wife of the property meant that the property was not protected under the policy.

Whether you are engaged in estate planning, asset protection, or divorce, this case provides a valuable lesson for people with homeowner’s policies.  When ownership of the property is changed because the property is transferred to a trust, business entity or spouse during a divorce, the parties engaged in the transfer need to consult with their insurance company and/or an insurance attorney to confirm that appropriate changes are made to the insurance policy.

Our Miami property damage insurance claims law firm invites you to contact us if you are having difficulties with your insurance company.  Florida insurance claims lawyer J.P. Gonzalez-Sirgo handles claims against insurance companies in Miami and throughout Florida. The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations.  No Recovery, No Lawyer Fees.  Call 305-461-1095 or Toll Free 1-866-71-CLAIM.

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