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To recover under an insurance contract in Missouri, one must have an “insurable interest” in the damaged property both at the time of making the contract and at the time of loss. In 1984, the Missouri Supreme Court reasoned that “The requirement of insurable interest is necessary to prevent wagering under the guise of insurance and temptation to destroy the insured property.” DeWitt v. Am. Family Mut. Ins. Co., 667 S.W.2d 700, 704 (Mo. banc 1984).

The importance of maintaining an insurable interest was illustrated in a 2018 case in the Southern District Court of Appeals.  The case of Billingsley v. Farmers Alliance Mut. Ins. Co., 555 S.W.3d 1 (Mo. App. 2018), involved an investor who purchased two rental houses which he then deeded to his sister.  An insurance policy for the properties was then issued to the sister.  About 5 years after the insurance policy was issued, the sister deeded the properties back to the investor.  No change was made to the insurance policy.  The policy was renewed each year and the premiums were timely paid for the next ten years until a fire destroyed one of the houses. 

The insurance company denied coverage and the investor sued the insurance company seeking to recover under the policy or, in the alternative, a refund of premiums paid. The insurance company argued that they were not required to pay out on the policy because they did not contract with the investor, and the party with whom they had contracted, the sister, did not hold an insurable interest in the subject property at the time of the fire.  They were granted summary judgment by the Trial Court which was then upheld by the Court of Appeals because the sister, with whom the insurance company had contracted, retained no insurable interest after she parted with title to the subject property.

Regarding the investor’s claim for a recovery of premiums paid, the investor argued that the insurance company was not entitled to retain premiums paid on a policy they deemed void.  The investor’s argument mirrored that made in Gutting v. Shelter Mut. Ins. Co., 905 S.W.2d 550 (Mo. App. 1995). In that case, the Missouri Court of Appeals stated that where an insurer asserts that its policy “was not in force and effect from the beginning, it is its duty to tender back to [the insured] the premiums paid by him within a reasonable time after the discovery of the facts upon which it intends to base such defense.” Id. Unfortunately for the investor, the facts of his case were distinguishable from those in Gutting, in that the insurance company was not asserting any facts to declare the insurance contract void from the beginning.  Here, the insurance contract was in full force and effect until the insured (the sister) relinquished her insurable interest in the subject property.  The investor was therefore not entitled to a refund of premiums paid, even after title to the property was transferred.

The lesson learned by the investor in Billingsley is especially important in these days of recurring automated payments and automated renewals of contracts.  One must be diligent in ensuring the information regarding property, titles, and individuals associated with insurance contracts is kept up to date.

Article written by Associate Attorney Ben Warren | Gausnell, O’Keefe & Thomas

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