Daily Development for Wednesday, October 31, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

INSURANCE; MULTIPLE INSURERS; LIFE TENANTS:  Holders of life estate and remainder interests in destroyed property were not both entitled to recover full value of property.

Burns v California Fair Plan Ass'n (2007) 152 CA4th 646, 61 CR3d 809

Burns, the holder of a life estate in a residence, and a trust (Trust) holding the remainder interest each purchased fire insurance policies on their interests in the residence from different insurance companies. After the residence was destroyed by fire, Burns and the Trust submitted claims to their respective insurers. The insurers determined that Burns and the Trust should recover on their interests on a pro rata basis.             

Burns and the Trust sued the insurers for breach of contract and breach of the duty of good faith and fair dealing, each seeking to obtain the full value of the residence on their respective insurance policies. Invoking the "other insurance" provision in each policy, the insurers successfully moved for summary judgment on the basis that they fulfilled their contractual obligations by paying Burns and the Trust on a pro rata basis according to the value of their insured interests in the destroyed property.

The court of appeal affirmed, holding that multiple insureds cannot recover more than the value of the property destroyed on a fire insurance claim resulting from a single occurrence.

Although Burns and the Trust each held a separately insurable interest in the destroyed property under Ins CC2=A7281, it did not follow that they both could recover the maximum allowed under their respective insurance policies without regard to the value of the destroyed property. The nature of insurance does not provide for recovery in excess of the value of the property destroyed when there is one loss. If an insured's interest extends to the whole subject matter of the property, the insured may recover up to the value of the property, subject to any policy limitation. However, if the insured's interest is less than the whole of the property, its right is limited by the value of the interest. The concept of indemnity excludes the notion of profit to the insured.

Neither Burns nor the Trust had an interest that extended to the whole of the property. Had each claimant been compensated for the full value of the residence, recovery would have been far in excess of the loss suffered.

This case did not involve double insurance under Ins CC2=A7590 because the same person was not insured by the two insurers and was thus not subject to pro rata payments in double insurance cases under Ins C =C2=A7591. Burns and the Trust pressed for application of  the maxim expressio unius est exlusion alterius   if exemptions are specified in a statute, additional exemptions may not be implied unless there is a clear legislative intent to the contrary .  They argued that pro rata payments are only permitted when there is double insurance.  The court, however, ruled that the maxim of statutory construction does not apply when, as here, its application would run counter to a well-established rule of law or when its operation would contradict a discernible and contrary legislative intent. The =E2=80=9Cwell-established rule of law=E2=80=9D applicable here was that insurance proceeds are to indemnify, not to generate a profit. Moreover, there was a discernible legislative intent to allow for proportionate

payment of insurance benefits in cases other than double insurance, such as when there is "other insurance" under Ins C A72070 and 2071, which govern standard form fire insurance policies. Historically, "other insurance" clauses were designed to prevent multiple recoveries when multiple policies provided coverage for the same loss. That is so even when the policies cover different insureds.

The court then proceeded to calculate the amount payable to each claimant by determining the total amount of the two policies, prorate the amount of each policy against the total, and then apply that percentage to the actual loss. 

Reporters Comment: Only an insurance lawyer can make sense out of this decision; I find it quite  confounding from a real estate point of view. If a residence is subject to the divided ownership of a life tenant and a remainderman, its value would be divided between them in a partition action by calculating either the value of the life estate (current income times estimated years remaining, discounted to present value) or the present value of the remainder, and then subtracting either number from the total value of the fee. The same calculation would probably be made if the two owners were suing a third party tortfeasor for causing (permanent) damage to their property.

Nothing like those numbers is mentioned in this case. The life tenant's age is not mentioned, so we have no idea of the potential duration of the life estate. Instead, the court engaged in the pro rata analysis described above.. The result depends not on the comparative value of the two estates, but on the respective amounts of insurance each party carried.

I am also puzzled by how this court is able to get around three out-of-state decisions awarding insured life tenants 100 percent of the value of their destroyed properties because they had paid full premiums, as was done here. Why would that result change because some remaindermen did the same for their future interests? Why should A's protection be reduced because of the exigency that B independently insured a different interest? But maybe that is how insurance law works.-

The reporter for this item was Roger Bernhardt of the Golden Gate Law School, writing in the California CEB Real Property Reporter.  Reprinted with permission. 

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