Can Mere Possession of Property Create an Insurable Interest?

A recent Tennessee Court of Appeals decision dealt with nuances of insurable interest in Tennessee law. 1 While reading the court’s analysis, my first thought was readers should appreciate that the concept of insurable interest varies between states. Tennessee has a very broad concept of the term and is very liberal in its legal approach to the insurable interest requirement.

Jenifer Griffin purchased a home in June 2010, financing it through a loan from Hope Federal Credit Union, secured by a deed of trust. However, Griffin defaulted on her loan, leading Hope Federal Credit Union to initiate foreclosure proceedings in 2018. In an attempt to stave off foreclosure, Griffin filed for Chapter 13 bankruptcy in August 2018. Her bankruptcy petition listed her personal property at minimal values, claiming household goods worth only $900, clothing at $150, and jewelry at $20. She denied owning any electronics, collectibles, or sports and hobby equipment.

Despite the bankruptcy filing, Hope proceeded with foreclosure, and Griffin was ordered to vacate the property by March 2019. However, she did not comply with this order. Hope foreclosed on the property pursuant to the deed of trust and initiated a wrongful detainer action against Griffin. During the pendency of this action, a fire occurred at the property in May 2019. Subsequently, Griffin submitted a sworn statement in proof of loss to Allstate, reporting an “actual cash value” of her personal property at $1,000,000. She also provided contents inventory sheets detailing the items damaged or destroyed in the fire, along with their original costs and ages.

Griffin then amended her legal filings to include a third-party complaint against Allstate, alleging breach of contract and bad faith refusal to pay additional living expenses and contents coverage pursuant to her insurance policy. Allstate responded by filing for summary judgment, arguing that Griffin was not entitled to additional living expenses because she did not have an insurable interest in the property at the time of the fire. They also argued that her contents coverage claim should be dismissed due to judicial estoppel, citing inconsistencies between her bankruptcy filings and her insurance claim, which they contended constituted material misrepresentations.

The trial court granted Allstate’s motion for summary judgment, finding that Griffin lacked an insurable interest in the property and that judicial estoppel applied to her contents claim. Griffin appealed this decision, raising several issues for review.

The appellate court’s analysis centered on the concept of insurable interest, which is fundamental to the validity of an insurance contract. In Tennessee, an insurable interest exists if the insured stands to gain an advantage from the property’s continued existence or suffers a loss from its damage or destruction, irrespective of whether they hold any title or lien on the property. The court noted that Tennessee law has long upheld this principle, recognizing that an insurable interest does not require absolute ownership but can exist based on the potential for economic loss or gain.

Griffin argued that despite the foreclosure, she maintained an insurable interest in the property due to her continued possession and the economic loss she would suffer from the fire damage. The court examined Tennessee case precedents where insurable interest was recognized even in the absence of clear ownership or title. For instance, the court found that a person who resided in a property, even without owning it, had an insurable interest. Similarly, the court noted that Tennessee precedent found that a couple who deeded their home to their son but continued to live in it retained an insurable interest due to their potential economic loss from its destruction.

The appellate court found that the trial court erred in its determination that Griffin lacked an insurable interest. By remaining in possession of the property and standing to suffer a significant economic loss from the fire, Griffin met the criteria for having an insurable interest under Tennessee law. The appellate court emphasized that the destruction of the property deprived Griffin of a place to live, thereby causing her economic harm, which substantiated her insurable interest.

Ms. Griffin continued to reside at the home at the time of the fire, although her continued possession of the property was being challenged in the wrongful detainer action. Thus, by the home’s continued existence, she would ‘gain an advantage,’ in continuing to have a place to reside (at least until potentially being removed by pending legal action). Consequently, by the home’s destruction, she would ‘suffer a loss’ by immediately having to find another place to live. In accordance with precedent, we find this fact a sufficient reason to conclude that Ms. Griffin had an insurable interest in the property. Therefore, we conclude that the trial court erred in granting summary judgment to Allstate on the additional living expenses claim on the basis that Ms. Griffin did not have an insurable interest in the property. 2

Fifteen years ago, I wrote about insurable interest in The Insurance Checklist–Insurable Interest and Address of the Risk:

The insurable interest requirement in property insurance policies has historical and practical implications. Generally, an ‘insurable interest’ in property exists when a person or entity derives some financial benefit or other personal advantage by a property’s preservation, maintenance or existence, so that if the property were damaged or destroyed, the person or entity would suffer a financial loss.

Historically, there was a social concern that if property insurance was sold, insureds would have an incentive to destroy the insured property. The purpose of the insurable interest requirement helps partially allay this concern.

…

The most common question I field is whether you have to be the owner of property to have an insurable interest. The answer: NO. To have an insurable interest, one must only suffer financially if the property is damaged or destroyed.

The answer to the title of this post is “yes.” The caveat is that one always has to check on the applicable state law to be sure.

A warning about this issue is that just because one has an insurable interest does not mean that the policyholder is “an insured” under the policy. I have noted this coverage issue a number of times, including in “How Does Divorce Affect Your Property Insurance Claim?”

I can appreciate that some readers reflecting on the facts of this case are going to wonder how a person in prior bankruptcy proceedings and a current foreclosure could be claiming $1 million for a contents loss. That discussion of “judicial estoppel,” where a policyholder claims almost nothing for bankruptcy and a significant amount for a contents claim, is a topic for another day.

Thought For The Day

Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.
—Warren Buffett

1 Hope Federal Credit Union v. Griffin, No. W2023-00310-COA-R3-CV, 2024 WL 3159858 (Tenn. App. June 25, 2024).
2 Id., at 9.