No Insurable Interest – No Right to Insurance Proceeds
Barry Zalma
May 3, 2023
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Thomas Spoon and Maria Spoon appealed from the Pulaski County Circuit Court order granting summary judgment in favor of appellees Chester Lee Bolds and Linda Bolds in the Boldses’ civil suit for damages related to insurance proceeds.
FACTS
In Thomas Spoon And Maria Spoon v. Chester Lee Bolds And Linda Bolds, 2023 Ark.App. 244, No. CV-22-277, Court of Appeals of Arkansas, Division II (April 26, 2023) The Boldses purchased the Spoons’ house by warranty deed on July 2, 2020. In November 2020, the Boldses filed an insurance claim because they discovered the roof was leaking. The Boldses’ insurance coverage would not pay because there was preexisting damage to the roof. The Boldses then filed a claim against the Spoons’ homeowner’s insurance. That insurer accepted the claim but paid the money in dispute ($5,219.48) to the Spoons. When the Spoons failed to turn the money paid on the insurance claim over to the Boldses, the Boldses filed suit, raising claims of breach of contract, declaratory judgment, and unjust enrichment.
The Boldses then moved for summary judgment because the Spoons’ had no insurable interest. The Spoons contended they are entitled to the money because they were the owners of the property at the time of loss. They claim that unjust enrichment cannot equitably apply because the Boldses did not pay for the insurance policy.
The court’s order found that any and all interest the Spoons may have had in the house was terminated and extinguished upon the sale of the house to the Boldses, and it ordered the Spoons to reimburse the Boldses for the roof repairs.
The Spoons argued that summary judgment was not proper because the court did not address the issues of privity of contract, standing, statute of frauds, or timing. To support their argument, they contend the general rule is that insurance policies are personal contracts between the insured and the insurer and that the Boldses were not a party to the original contract or privy to it.
ANALYSIS
The issues of breach of contract, unjust enrichment, and declaratory judgment were briefed to the circuit court. To find unjust enrichment, a party must have received something of value to which he or she is not entitled and which he or she must restore. There must also be some operative act, intent, or situation to make the enrichment unjust and compensable. One who is free from fault cannot be held to be unjustly enriched merely because he or she has chosen to exercise a legal or contractual right. Further, if one has money belonging to another, which, in equity and good conscience, he ought not to retain, it can be recovered although there is no privity between the parties.
It was undisputed that the Spoons received the insurance money that was distributed for repair of the roof of a house in which they no longer had an interest.
Unjust enrichment amounted to an alternative, independent basis for the circuit court’s ruling, which has gone unchallenged by the Spoons. Accordingly, the Boldses were entitled to the reimbursement.
ZALMA OPINION
The insurer erred in paying the Spoons since the had no insurable interest. The Spoons kept the money to which they were not entitled and owed the Boldses for selling them a house with a leaky roof. The Spoons were clearly unjustly enriched and owed the Boldses for the cost of fixing their roof. What the court did not consider, because it was not a party, the insurer who paid the Spoons did not owe indemnity to them and paid a claim it did not owe. Since the insurer did not care and the Boldses did care, they were entitled to the funds.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]
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Barry Zalma, Esq., CFE is available at http://www.zalma.com and [email protected]
Follow me on LinkedIn: https://lnkd.in/guWk7gfM
Go to the Insurance Claims Library – https://lnkd.in/gWVSBde.
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