Can I pick the most dangerous neighborhood in the country, and take out a $250,000 life insurance policy on 100 random people? Knowing that the likelihood on one of them getting killed this year is pretty high, and the likelihood of me being a millionaire in the next 5 years is equally high?
Probably not. Not if I don’t have an “insurable interest” in the people whose lives I am insuring. Do I stand to benefit more from them alive? Do I stand to actually suffer a loss if they do die? If the answer to these questions is No, then there probably isn’t an insurable interest, and any policy I bought or tried to buy would be deemed not a contract for insurance at all.
What if I’m leasing a property, that I use for business purposes and supporting myself and my family. Can I insure the life of the owner of that property?
As you may have noticed, these cases hinge greatly on the facts. I can insure my wife’s life. My mother, brother, or other blood relatives with what seems to be no issue. My car, my house, even my own business. These all seem obvious, so where’s the fun in even asking? When it comes to non-relatives, or property that one does not own, or other peripherals, it becomes more difficult and less “black and white.”
Snethen v. Oklahoma State Union of Famers represents one of those strange cases. Snethen buys a car, he insures the car and then is in an accident in which the car is damaged. Will his insurance company pay for the damage? Sure they will…or will they? Turns out the car Snethen bought was previously stolen, unbeknownst to him and the insurance company doesn’t want to pay, claiming that Snethen cannot have an insurable interest in stolen property. In this case, the court decides that since his reliance upon the sale and the purchase of the insurance policy is honest and reasonable, that he, in fact, does have an insurable interest.
Beard v. American Agency Life Ins. Co., 314 Md. 235 (1988) is the case I referenced earlier, about leasing a property for business purposes and insuring against the death of the owner. In this case, we deal with 150 acres of farmland in western Maryland. There is discussion of the owner selling the lessee the property, upon his death. Since the lessee doesn’t really have the money to buy it, he takes out a life insurance policy against the owner, for the cost of the land. Essentially getting the insurance company to buy the property for him when the time is right. One major issue is that he stops leasing the property, sells all of this business equipment and disengages entirely years before the owner passes away.
Maryland actually defines criteria for an insurable interest:
(1) In the case of individuals related closely by blood or by law, a substantial interest engendered by love and affection.
(2) In the case of other persons, a lawful and substantial economic interest in having the life, health, or bodily safety of the individual insured continue, as distinguished from an interest which would arise only by, or would be enhanced in value by, the death, disablement or injury of the individual insured.
(3) An individual heretofore or hereafter party to a contract or option for the purchase or sale of an interest in a business partnership or firm, or of shares of stock of a closed corporation or of an interest in such shares, has an insurable interest in the life of each individual party to such contract and for the purposes of such contract only, in addition to any insurable interest which may otherwise exist as to the life of such individual.
Maryland Attorney Jobeth Bowers is the founder of Bowers Law and a graduate of the University of Baltimore School of Law