Can an insurance company waive a defense based on lack of insurable interest by accepting premiums for the policy and issuing it? It may depend on the jurisdiction you are in. If the insurance company issued the policy and accepted the premiums even though it should have known its customer did not have an insurable interest, the policyholder may be able to recover in some jurisdictions.1 New York Courts have recognized the theories of waiver and estoppel under these circumstances.2
The philosophy embodied in finding an insurable interest in such circumstances is:
The courts are loathe to enforce a forfeiture and are prompt to seize on any circumstances which will indicate a waiver on the part of the insurer or which will raise an estoppel against it.3
In other jurisdictions, establishing insurance coverage on the basis of waiver or estoppel may not be allowed, on the theory that an insurance policy is void from the beginning (ab initio) where there is no insurable interest. This approach is based on a public policy against wagering contracts. When a waiver or estoppel theory is not available, policyholders have pursued fraud theories against insurance carriers by showing they were induced to purchase policies by insurer carriers’ misrepresentations that coverage could be provided.4
As far back as 1879, courts have criticized the practice of accepting policy premiums and issuing policies when insurers should have been aware of facts that could void policies:
If the crafty conditions, with which fire insurance companies fence in the rights of the assured, and the subtle argument which their counsel found upon them, were always to prevail, these corporations would be reduced almost to the single function of receiving premiums for little or no risk.5
If questions arise, policyholders and their representatives should consult with experienced counsel to evaluate potential avenues of recovery.
1 From a strict conceptual standpoint, there exists a distinction between "waiver" and "estoppel," a waiver being an intentional relinquishment of a known right—a voluntary act—and estoppel being the misleading of a party entitled to rely on the acts or statements in question and a resultant change of position to the detriment of the party acting. In many of the insurance cases, however, the courts have not clearly distinguished between waiver and estoppel and sometimes have used the terms interchangeably. 91 A.L.R. 3d 513
2 Ferraiolo v. Commonwealth Ins. Co., 240 NYS 2d 270 (1963); St. Paul’s Roman Catholic Church v Westchester Fire Ins. Co., 319 NYS 2d 239 (1971).
3 Hollman, Insurance and the Doctrines of Estoppel, Waiver, and Election, 9 Am-Bus L J 39 (1971).
4 Brewton v. Alabama Farm Bureau Mut. Cas. Ins. Co., Inc. 474 So. 2d 1120 (Ala. 1985).
5 Appleton Iron Co. v. British American Assur. Co., 46 Wis. 23, 1 N.W. 9 (Wis. 1879).
