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Balentine v. New Jersey Insurance Underwriting Association

406 N.J. Super. 137, 966 A.2d 1098 (App. Div. 2009)

DEEDS; INSURANCE — Even though an insured may only be holding record title as a nominee for someone else, the record title owner still has an insurable interest in the property and an insurance company may not turn down a claim based upon its allegation that there is no such insurable interest.

Two friends purchased a commercial property. Two years later, when one owner filed for bankruptcy, the property was transferred to the non-bankrupt owner. However, the transferor was still permitted to use the property. He was given a power of attorney to take “all incidents of ownership” with respect to the property. The transferor continued to pay the property taxes, insurance premiums, utilities, and other expenses for the property and he received the rental income generated from the property. The friends obtained insurance for the property, which, among other things, had vandalism coverage. The record owner filed a claim when vandals entered and caused damages to the property. The record owner then transferred title to the property back to his friend who then sold it and kept the proceeds.

The two friends sued the insurance company for not paying the vandalism claim. The insurance company argued that the non-bankrupt owner had no insurable interest even though, at the time of the incident, he was the record owner of the property. The insurance company argued that he was the nominee of his friend and did not, himself, have a true stake in the property. It also argued that the friend was not a named insured on the policy at the time of the loss.

The lower court found that the record owner of the property had an insurable interest, and that the relationship between the record owner and his friend was immaterial. The insurance company appealed, but the Appellate Division affirmed. The Court noted that the test for an insurable interest is whether the party has such a right, title or interest in the property that he will benefit by its preservation or suffer a pecuniary loss from its destruction. The insurance company argued that the lower court failed to properly analyze the record owner’s relationship to the property. The company argued that even though the record owner was named on the title, he had no stake in the property and was merely acting as a nominee for his friend who exhibited all the indicia of ownership.

The Court found that the record owner actually had an insurable interest in the property and was entitled to payment of the vandalism claim. It noted that the insurance company misread the significance of prior cases that illustrated times when a person without legal title to a property had an insurable interest. It noted that those cases were not intended to deprive a record owner from having an insurable interest in his property. In this case, the Court found that even though the record owner did not maintain the property, pay the expenses or collect the rents, he was not a stranger to the property. If the taxes were unpaid, the municipality could file a lien against his property. If someone were injured on the premises, he would be held responsible. Therefore, without insurance coverage, the record owner would suffer a direct pecuniary loss if the property were destroyed. Even if he didn’t have an upside in owning the property, he still had a downside if the property was uninsured. The Court noted that if it accepted the insurance company’s argument, then neither the record owner nor his friend would be entitled to recover on their claim for losses related to the vandalism. The owner would be denied coverage because, despite his ownership, he lacked a sufficient stake in the property because he was only acting as a nominee for his friend. The friend would not be entitled to recoup because he was not a named insured on the policy. In that case, there would be a windfall for the insurance company because it could keep the premiums it charged without having to pay a claim.

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