Daily Development for Wednesday, August 12, 2009
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri
INSURANCE; CASUALTY INSURANCE; INSURABLE INTEREST: Record owner of real property, who is serving as the nominee of another person, has an insurable interest in the realty sufficient to recover proceeds of a vandalism insurance policy on which he is listed as a named insured.
Balentine v. New Jersey Ins. Underwriting Assoc., 966 A.2d 1098 (N.J. Super. Ct. App. Div. 2009).
The plaintiffs William Balentine and Luke Gianetta jointly purchased a commercial warehouse building. Balentine subsequently went into bankruptcy, and the plaintiffs jointly transferred the property to Gianetta for one dollar. Balentine was still allowed to use the property after the transfer, and Gianetta later issued a power of attorney to Balentine, allowing Balentine to take care of all incidents of ownership on behalf of Gianetta. Balentine kept the rents and paid the expenses. After the events described here arose and were in litigation and on appeal, Balentine sold the property and kept the proceeds.
Balentine obtained a liability and fire insurance policy and listed the named insured as "Luke Gianetta c/o William Balentine." The insurance writer dealt with Balentine as Gianetta's agent. Subsequent to the issuance of the policy, an unlawful entry on the premises occurred, and the intrusion caused vandalism damage to the structure. There did not appear to be a dispute about whether the insurance covered vandalism damage, although the court is vague as to the exact nature of the coverage for physical injury to the premises.
A claim on behalf of Gianetta was filed with the insurance carrier, which responded that Gianetta had no insurable interest in the property because he was merely Balentine's nominee. As a result, plaintiffs filed a complaint seeking damages for the property damage.
The trial court concluded that Gianetta had an insurable interest in the premises, and the insurance carrier appealed.
On appeal, the insurance carrier argued that Gianetta did not have an insurable interest and, furthermore, that Balentine could not recover because he was not a named insured. The appellate court held that Gianetta did have an insurable interest. In so holding, the court noted that Gianetta could realize significant loss if the premises were left uninsured. Such loss could come, the court noted, in the form of a tort claim by an injured visitor. Accordingly, Gianetta's relationship with the property was not as distant as the insurance carrier depicted. In any event, well-settled principles dictate that an insurance policy is to be governed by its own clear terms and without recourse to other documents. The relationship between Gianetta and Ballentine was therefore irrelevant to the court's analysis.
Reporter’s Comment: The insurance carrier's position that neither Gianetta nor Balentine could receive insurance proceeds was strange. For what purpose then was the carrier receiving insurance premiums? [The court noted this argument.]
Editor’s Comment 1: The insurer argued that all effective ownership was in Balentine, and so any money that Gianetta would receive for injury to the building would be a windfall to him. The court responded that the insurer had agreed to name Gianetta as the insured with full knowledge that he was merely a “nominee” for Balentine, and hence it had accepted Gianelli as its insured. It commented that the purpose of the relationship of Gianetta and Balentine (to shield Balentine’s interest from bankruptcy creditors) was of no consequence to the insurer’s liability.
The court also commented that Gianetta, although he had no “upside” benefit, did have some “downside” exposure as he might be liable personally for surplus unpaid taxes and might be liable in tort (query what this has to do with insurability under a casualty policy.)
Editor’s Comment 2: Does this court tell us anything about “nominee” relationships that might be useful in puzzling out the cases involving MERS? In those cases, again, no one was hiding MERS’ nominee relationship from borrowers or anyone else. Should it therefore be viewed as holding a “real interest” as against third parties?
Editor’s Comment 3: Near the end of the opinion, the court comments that the insurer’s knowledge of the relationship between Gianetti and Ballentine was not critical to the outcome of the case, which was based upon the insurer’s listing of Gianetti as insured. But can this really be true? What happens to the “insurable interest” requirement when complete strangers might be listed? Perhaps the court is limiting its remarks to the broader relationship between the two characters, and not to those aspects that were evident to the insurer when the policy was written.
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