Earlier this week, the Tennessee Court of Appeals issued a 24 page opinion addressing a variety of issues affecting insureds in the State of Tennessee. The case is Adams v. Tennessee Farmers Mutual Insurance Company, a copy of which is available here. My partner, Clint Scott, and I represented the insured in this case, which was tried way back in December 2008 before Judge Roy Morgan in Chester County. The case was defended by Charlie Trotter, a very talented and experienced defense lawyer who certainly keeps us on our toes. The Court of Appeals opinion is worthy of several blog posts, but I’ll try to summarize the major points here.
First, the Court of Appeals made it crystal clear that legal title is not required in order to have an insurable interest in real property. Tennessee Farmers argued that an insured’s transfer of legal title to a family member mandated a finding that there was no insurable interest. The Court of Appeals disagreed, finding that any interest in property, even the mere right to use property, is enough for a finding that there is an insurable interest. All that is required is that the insured benefit from the property’s continued existence or suffer a loss as a result of its destruction.
Second, the Court of Appeals rejected the proposition that an insured has a duty to notify an insurer of a change in ownership of the insured property when the change in ownership occurs after the policy is issued. This contention actually raised an even broader issue of first impression in Tennessee, i.e., whether an insured has a duty to supplement the disclosures made on an application for insurance after a policy has been issued. After surveying several jurisdictions across the country, the Court of Appeals concluded that there is no such duty, reasoning “the burden is more appropriately placed on the insurer to specify when the insured will be required to notify it of changes in circumstances after the policy is delivered.” Because the policy at issue in this case had no such provision, there was no duty to disclose the change in legal ownership subsequent to the issuance of the policy.
Finally, the Adams case also addressed the issue of whether an insured is entitled to the full policy proceeds when he or she was occupying the property but lacked legal title. In considering this issue, the Court of Appeals again referenced decisions from our sister states and adopted the reasoning of the Oklahoma Supreme Court in concluding that “the insurable interest requirement should not be extended beyond the reasons for its existence by an overly technical construction that frustrates the legitimate expectations of the insured or that permits an insurer to avoid the very risk it intended to insure.”
The Adams case is an important case for first party insurance practitioners on both sides of the bar, and all such lawyers would be wise to read it closely.