The Basics of Insurable Interest

Richey-Barrett Blog (43)
Gino is buying a 14-unit apartment building that is structurally solid, but needs both maintenance and repair work. Three days ago Gino and Toby entered into a purchase contract in the amount of $300,000. Along with signing the purchase contract, Gino also put a $20,000. deposit down on the apartment building. Toby, the current owner of the apartment building, advised Gino before entering into the purchase contract that Toby only has liability insurance on the apartment building. Toby owns the apartment building (there are no liens on the property), and Toby is not interested in providing property insurance on the building. Gino asks the very practical question, “Can I insure this property now before official title transfers to me?”. Good question.
What do you think? Can Gino buy a policy covering the property before title transfers? Does Gino have to wait until title transfers and then buy a property insurance policy on the apartment building?In order to answer Gino’s question, the issue of insurable interest must be determined. Insurable interest for insurance purposes generally must meet two requirements: 1) legal interest at the time the policy is written AND 2) legal interest at the time of loss. In this scenario both Gino and Toby have an insurable interest in the property. Toby still holds the title and deed, so he obviously has an insurable interest. Gino, by signing the purchase contract and putting a $20,000. deposit down towards the purchase, also has an insurable interest. Gino is able to insure his new apartment building the very day he signed the contract and made the deposit on the purchase … Gino does not have to wait for title to transfer. Gino has an immediate interest in protecting his purchase. Gino likely has an increased incentive to purchase property insurance immediately, as Toby has chosen to go without property insurance on the apartment building. Recall Toby only has liability insurance, which would provide coverage for claims such as a trips and falls. If Gino purchases property insurance on the apartment building upon executing the purchase contract, he will have protection he needs in the event a fire breaks out in the building prior to title transfer.*
It should be noted that most property insurance companies would require completion of the sale of the apartment building to Gino prior to Gino making any repairs or improvements to the property, as the apartment building is still legally owned by Toby (in deed and title).


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