Continuing the discussion last week on the importance of having an insurable interest in property to pursue a claim, I came across a New York case involving an “insurable interest” clause in an insurance policy with a different outcome from the New York case discussed last week in my post, One Can Have An Insurable Interest In Property Without Having A Legal Interest In The Property.

In Azzato v. Allstate Insurance Company,1 a New York court was deciding an issue in a property insurance claim that involved a question of whether the plaintiffs had an insurable interest in the property involved. The Plaintiff, Raymond Azzato was a co-owner of the property with a person that was not a party to the case. Azzato, and his wife, Tricia Williamson, had obtained an insurance policy covering the dwelling. That policy did not list the co-owner as an insured. The policy had an “insurable interest” clause stating:

In the event of a covered loss, [the carrier] will not pay more than an insured person’s insurable interest in the property.

The plaintiffs filed the lawsuit after Allstate denied coverage for their claim for fire damages to the property. They sought to recover $250,000 for the fire damages.

Allstate raised numerous defenses, the most important of which for this discussion was that Azzato’s insurable interest was limited to 50% of the value of the property since he was only a 50% co-owner . Allstate also argued that Azzato’s wife did not have an insurable interest in the property.

The Court discussed the insurable interest statute, Insurance Law section 3401 that we discussed in last week’s article and that an insurable interest is present when a person would profit by or gain some advantage from the property’s continued existence or suffer some loss or disadvantage by its destruction.

What this Court did though was go a little further to say that “the interest must be of such a character that the destruction of the property will have a direct, and not a mere remote or consequential, effect upon it.”

Plaintiffs argued that Williamson contributed to the purchase price of her husband’s share of the property; that she helped maintain the property after it was purchased; and that she furnished part of the dwelling with her own items of personal property. Despite these facts, the Court held that Williamson had no insurable interest in the property. The Court held:

The fact that she may have helped to maintain her husband’s investment does not provide a basis for concluding that she had an Insurable interest such that the loss of the subject dwelling would have directly affected her pecuniary interests.

The Court also noted that Williamson did not show she earned any income from the property, did not show she ever resided in the dwelling, or had any legal or equitable right to live in the dwelling. The Court also ruled that Azzato’s insurable interest in the property was limited to 50% of the value of the property.

The case discussed last week, Bardakjian v. Preferred Mutual Insurance Company, did not appear to have the “insurable interest” clause in the policy, which may be why Mr. Bardakjian’s recovery was not limited to 25% of the value of the property, which was his ownership interest through an LLC. I am curious to know how many readers have come across this “insurable interest” policy provision in claims they have handled?

1 Azzato v. Allstate Ins. Co., 951 N.Y.S.2d 726 (NY Sup. CRT., App. Div. 2d Dept. 2012).