Case Title: DELK v. MARKEL AMERICAN INSURANCE COMPANY

Citation: 

Docket Number: 99117

State: oklahoma

Court: Oklahoma Supreme Court

Date: 2003-10-21T00:00:00Z

Document:
DELK v. MARKEL AMERICAN INSURANCE COMPANY  DELK v. MARKEL AMERICAN INSURANCE COMPANY 2003 OK 88 81 P.3d 629 Case Number: 99117 Decided: 10/21/2003 THE SUPREME COURT OF THE STATE OF OKLAHOMA DEBRA DELK, Plaintiff, v. MARKEL AMERICAN INSURANCE COMPANY, a Virginia Corporation, Defendant. CERTIFIED QUESTION FROM A FEDERAL COURT ¶0 The United States District Court for the Western District of Oklahoma has certified to this court a question of law. Debra Delk, the sole named insured under a homeowner's policy written by Markel American Insurance Company, brought an action against the insurer in federal district court for breach of contract and for breach of the insurer's implied duty of good faith and fair dealing. Delk's home was completely destroyed in a fire and she filed a claim with the insurer for the policy's dwelling coverage limits. When the insurer discovered that Delk owned only an undivided fractional interest in the home it invoked the insurable interest requirement and refused to pay her for more than the value of her legal estate in the property. On counter motions for summary adjudication of the breach of contract claim, United States District Court Judge, Wayne Alley, certified to this court a question of law regarding the extent of Delk's insurable interest. CERTIFIED QUESTION ANSWERED Peter J. Ram and James A. Belote, STIPE LAW FIRM, Oklahoma City, Oklahoma, for plaintiff. Bruce V. Winston, WALKER, FERGUSON & FERGUSON, Oklahoma City, Oklahoma, for defendant. OPALA, V.C.J. May an insured cotenant who occupies the insured property as her home and who has insured the property for its full value recover (within the policy limits) more than the value of her fractional legal interest in the property? We answer this reformulated question in the affirmative. I ¶2 In April 1998 James Delk executed a warranty deed conveying equal fractional interests in his residence to six of his relatives, including his daughter, Debra Delk (plaintiff or Delk). The other five cotenants named in the deed are plaintiff's adult son, John, his minor children, Julian and Cheyenne Delk, plaintiff's minor son, Tanner Mabry, and plaintiff's adult nephew, Cody Delk. Plaintiff lived in the home with John and his family until it was destroyed by fire in September 2001. ¶3 Markel American Insurance Company (defendant) in May 1999 issued to plaintiff as the sole named insured a homeowner's policy covering the residence. The application did not ask plaintiff about the nature or extent of her legal title. Plaintiff contends that she informed defendant she was taking over as policyholder from her father and that she would be making the premium payments. Plaintiff renewed the policy on a yearly basis at an annual premium of $786.00. The policy was in force and effect when the house was destroyed by fire. The policy limits for dwelling coverage stand at $104,000.00. ¶4 When the home was destroyed by fire in September 2001, plaintiff made a claim under the policy for the amount of the policy's dwelling coverage limits. Defendant learned while investigating the claim that plaintiff owned only a one-sixth interest in the insured property. Defendant then denied plaintiff's claim as to all but one-sixth of the policy limits on the grounds that her insurable interest -- and hence the insurer's indemnification duty -- was limited to plaintiff's fractional share of the property's ownership. ¶5 Plaintiff then brought this action against defendant in the United States District Court for the Western District of Oklahoma for breach of contract and breach of the insurer's implied duty of good faith and fair dealing. Both parties moved for summary judgment. II THE NATURE OF THE COURT'S FUNCTION WHEN ANSWERING QUESTIONS FROM A FEDERAL COURT ¶6 In answering questions posed by a federal court, the parameters of state-law claims or defenses identified by the submitted questions may be tested, but it is not this court's office to intrude (by its responses) upon the certifying court's decision-making process. ¶7 Because this case is not before us for decision, we refrain (as we must) from applying the declared state-law responses to the facts in the federal-court litigation, which have been tendered for review by the certifying court either in the form of evidence adduced at trial or by acceptable probative substitutes (so-called "evidentiary materials"). III THE PURPOSE OF THE INSURABLE INTEREST REQUIREMENT AND THE GUIDING PRINCIPLE BEHIND ITS IMPLEMENTATION IN OKLAHOMA ¶8 An insurance contract is valid and enforceable only to the extent that the insured has an insurable interest in the subject matter of the policy. ¶9 An insurable interest is the relationship or connection a person must have with the subject matter of an insurance policy in order to insure it. The insurable interest doctrine developed over the course of several centuries in response to certain public policy concerns related to insurance. The foremost historical justification for the insurable interest requirement ¶10 The doctrine of insurable interest initially entered American jurisprudence by way of decisional law, but many jurisdictions have over the years enacted insurable interest statutes. While American jurisdictions generally agree on the necessity of an insurable interest, they are divided on what constitutes such an interest. The nature of the interest that qualifies as insurable has changed over time and is gradually broadening. ¶11 In Snethen v. Oklahoma State Union of the Farmers Educational and Cooperative Union of America, ¶12 The purpose of the insurable interest requirement must stand at the center of any analysis of the doctrine's application. This is so whether the inquiry concerns the complete presence or absence of an insurable interest or whether, as here, it concerns the extent or measure of an insurable interest. Judicial consideration must be given to whether the contract suggests an element of wager on the part of the insured, i.e. whether it appears that the insured was betting on the loss of property with which he (or she) had little or no connection. The court must also consider whether recovery by the insured would exceed the loss actually suffered, thereby providing motivation for destroying the property. The insurable interest requirement should not be extended beyond the reasons for its existence by an overly technical construction that frustrates the legitimate expectations of the insured or that permits an insurer to avoid the very risk it intended to insure. With these considerations in mind, we address the extent of this plaintiff's insurable interest under Oklahoma law. IV ¶13 Defendant invokes the oft-repeated statement that a cotenant's insurable interest is limited to his (or her) interest in the property. ¶14 Tenancy in common is a joint interest in property. ¶15 While none of these attributes of cotenancy places an affirmative duty on one cotenant to insure the common property for the benefit of the other joint owners, cotenants clearly have a mutual and reciprocal interest in the safety and preservation of the common property. This is especially true where the cotenants are all family members and the common property is the residence of some or all of them. Each has a reciprocal expectation of economic advantage from the home's continuing existence and its availability as a residence for the others. When the residence is destroyed, the occupants lose more than their individual fractional legal interests in the property. Before the home's destruction, they all have a place to live. Afterwards, they are homeless and must go to the expense of securing another home. ¶16 In such a case it would not be unusual for one of the resident cotenants to be given the responsibility of maintaining and protecting the property for the benefit of the other co-owning family members. A cotenant who has assumed or who has been given such general managerial authority over the property is free to exercise that authority by taking any measure which a reasonably prudent person in that position would take to protect the property, including purchasing insurance for the benefit of all joint owners. ¶17 Whether Delk was in fact authorized by the other cotenants as their agent to secure fire coverage for the co-owned premises is a question of fact for resolution by the certifying court. ¶18 The provisions of 36 O.S. 2001 §3605.C. state, "The measure of an insurable interest in property is the extent to which the insured might be damnified by loss, injury, or impairment thereof." The statutory formulation is simply another way of saying that the insured may recover the amount which will indemnify him (or her) for the loss suffered. Indemnification is measured by the extent to which the insured has been economically impacted by the happening of the insured event. Assuming the existence of the requisite agency relationship between plaintiff and her co-owners, anything less than a recovery in the amount of the value of the property (up to the policy limits) will not constitute full indemnity for the loss. ¶19 It might be objected that allowing a fractional interest holder to recover the full value of the fee interests under an insurance contract implicates the public policy concerns underlying the insurable interest requirement. In response we would underscore that the insuring cotenant acts as an agent for the other co-owners in acquiring insurance on the premises and any recovery is held in trust by the insuring cotenant for the benefit of the other joint owners. An agent is a fiduciary with respect to any matter in the scope of the agency relationship. ¶20 The ordinary person purchasing insurance cannot be expected to understand a term of art such as insurable interest in a policy of insurance. All the insured knows is that he (or she) has paid money to secure protection for the insured property and in case it is destroyed the insurer will cover the loss. The policy of insurance in this case states that it covers "your [the insured's] dwelling." On the eleventh page of the policy, fifth among a list of fifteen conditions is the insurable interest limitation. The insurer never asked the insured about her legal interest in the insured property. The policy limits and the premium paid by this insured clearly demonstrate her intent that more than her bare legal interest be insured. An insurer cannot lead an unsophisticated insured into believing that protection of the family home has been procured and then after the occurrence of the insured event deny full coverage. ¶21 Finally, it is immaterial to the risk assumed by the insurer whether this plaintiff was acting as the agent of the joint owners or whether she was the property's sole owner. The insurer believed it was entering into a contract of indemnity for the full value of the home up to the coverage limits. Its obligations are not increased by the actual status of the legal title to the insured premises. The risk it assumed is the risk it incurred. V A COTENANT IN POSSESSION, BEING LEGALLY LIABLE TO THE OTHER JOINT OWNERS FOR DAMAGE TO OR DESTRUCTION OF THE COMMON PROPERTY, HAS AN INSURABLE INTEREST TO THE EXTENT OF HIS (OR HER) POTENTIAL LEGAL LIABILITY ¶22 Plaintiff also urges us to instruct the certifying court that she has an insurable interest in the whole dwelling by virtue of her use and occupancy of it as her residence. We need not decide whether bare possession would suffice to permit a cotenant in possession of a dwelling to insure it for its full value. This is so because we recognize the traditional common-law rule that whenever one person is by circumstances placed in such a position with regard to another, that, if he (or she) did not use ordinary care and skill in his (or her) own conduct, he (or she) would cause danger of injury to the person or property of the other, a duty arises to use ordinary care and skill to avoid such danger. ¶23 The separate writing of the justice who partially concurs in today's pronouncement suggests that our answer to the certified question establishes as a matter of law that a cotenant in possession has an insurable interest in the common property by virtue of the cotenancy relationship. This is a misstatement of our holding, which rests on the potential liability of a cotenant in possession to the other cotenants for damage to or destruction of the common property and not on a status- based duty to insure the common property for the benefit of the other joint owners. ¶24 The objection could be raised that a cotenant who could recover all the insurance proceeds upon a total loss of the common property might be tempted to destroy the property and then either keep the proceeds or use them to rebuild, excluding the former cotenants from ownership of the new premises. Cotenancy principles preclude this result. Just as the acquisition of an adverse title inures to the benefit of other joint owners, ¶25 CERTIFIED QUESTION ANSWERED ¶26 WATT, C.J., OPALA, V.C.J., and HODGES, LAVENDER, SUMMERS and WINCHESTER, JJ., concur; ¶27 HARGRAVE and KAUGER, JJ., concur in result; ¶28 BOUDREAU, J., concurs in part and dissents in part. FOOT