Insurable Interest Created By Substantial Economic Interest

Commercial Property	Contractors Equipment
Inland Marine	Policy Reassignment

When the owner of a logging machine sold the equipment to another party, arrangements were made for the buyer to make monthly payments to the seller. The seller continued to make the monthly payments he had previously made to a finance company where he had financed the original purchase. No changes were made to the inland marine policy he carried on the equipment. The policy continued in force without notice to the insurer of the sale of the machine. The seller was the named insured, and the buyer agreed to it.

Fire destroyed the machine. The buyer ceased payments to the seller, who promptly paid off the amount of the loan. He then filed suit to recover the value of the machine from the insurer. The insurer appealed a trial court judgment awarding the stipulated value of the insured property to its insured.

The insurer argued that the seller lost his insurable interest in the property when he sold it and did not arrange reassignment of the policy to the buyer. The appeal court referred to the following definition in Louisiana statutes relative to enforcement of insurance contracts: "B. 'Insurable interest' as used in this Section means any lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage." (LSA-R.S. 22:614.)

The court cited various authorities and cases in point to conclude that the key determinant of insurable interest was "whether a substantial economic interest exists." Finding this to be the case, the trial court's judgment was affirmed in favor of the insured and against the insurer.

JOHNSON, Plaintiff, Appellee v. MIDLAND INS. CO., Defendant, Appellant. Louisiana Court of Appeal, Third Circuit. No. 88-19. April 19, 1989. 541 So. 2d 1010. CCH 1989-90 Fire and Casualty Cases, Paragraph 1974.