Daily Development for
Thursday, February 19, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

INSURANCE; LIFE TENANT: Absent agreement or a separate duty, life tenant is not required to rebuild property for remainderman's benefit or hold insurance proceeds in trust for remainderman.

Ellerbusch v. Myers, 683 N.E.2d 1352 (Ind. App. 1997).

Life Tenant held a life estate in property consisting of eighty-eight acres and a house, and insured the property in her own name and for her own benefit. When the house burned down in 1995, Life Tenant collected the insurance proceeds, but did not use them to rebuild the house. Remainder owners contended that Life Tenant breached her fiduciary duty to the remaindermen by retaining all of the fire insurance proceeds. The trial court granted Life Tenant's motion for summary judgment.

On appeal: held: affirmed. In this case of first impression in Indiana, Court of Appeals adopted the majority rule stating that, absent an agreement or a fiduciary relationship apart from the incidents of the tenancy, a life tenant is entitled to the entire proceeds of the insurance he/she held on the property. This is the rule even where the insurance covers the full value of the property and not merely the value of the life tenancy.

The court reasoned that both the life tenant and the remaindermen have insurable interests, and each can insure for him or herself.

Comment: The case and the rule are correct. The life tenant has no responsibility to remainder interests except to prevent waste. If the damage to the premises occurred as a consequence of something other than the life tenant's waste, the remainder owners have no quarrel with the life tenant. Consequently, the insurance proceeds stand completely apart. There are a few cases where who share an interest in certain property with an insured have argued that an insured's receipt of all the insurance proceeds would constitute unjust enrichment, where the insured's interest is less than the interest which the insurance protected. Apparently, this sort of thinking affected one of the "minority rule" cited by the court. Sampson v. Grogan, 42 A.712, 171 (R.I. 1899). But generally speaking the courts have viewed this problem, if it is one, as one to be resolved between the insured and the insurer. The third party sharing an interest in the property bought no insurance, and could have. Another case holds simply that the insurance proceeds stand in place of the damaged property, and thus should pass on to remainder interest holders. Green v. Green, 27 S.E. 952, 959 (1897). This reasoning, however, assumes, incorrectly, that the life tenant has some duty to deliver the premises to the remainder person unimpaired. Except for the doctrine of waste, or where there is some special contractual or fiduciary relationship, this is a false premise.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1-6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Stacy Woodward at the ABA. (312) 988 5260 or woodwars@staff.abanet.org

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