Opinion ID: 2623341
Heading Depth: 1
Heading Rank: 3

Heading: the purpose of the insurable interest requirement and the guiding principle behind its implementation in oklahoma

Text: ¶ 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. [11] This requirement has long been a part of Oklahoma's common law [12] and also stands today as a statutory prerequisite for the validity of an insurance contract. [13] The pertinent subsection of 36 O.S.2001 § 3605 states: No insurance contract on property or of any interest therein or arising therefrom shall be enforceable as to the insurance except for the benefit of persons having an insurable interest in the things insured. [14] The insurance policy at issue in this case also contains a provision limiting defendant's liability to the insurable interest an insured person has in property covered by the policy. [15] ¶ 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 [16] was to prohibit wagering contracts in the guise of insurance. [17] Odd as it may strike us today, insurance as an instrument of wagering was a common and accepted practice in mid-eighteenth century England. [18] Parliament, responding to the pernicious effects of this practice, [19] passed a series of statutes beginning in the middle of the eighteenth century requiring as a prerequisite for the validity and enforceability of an insurance contract that the insured have an interest in the contract's subject matter. [20] While the historical anti-wagering foundation of the insurable interest doctrine remains valid, other public policy objectives have greater resonance today. [21] The distinction between wagering and insurance is now so firmly established in public perception, [22] that the justification for the insurable interest doctrine is more readily apprehended today as the prevention of unproductive and wasteful commercial transactions, [23] the limitation of insurance to true indemnity, [24] and the deterrence of the fraudulent destruction of insured property. [25] ¶ 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. [26] Two competing theories have evolved for measuring the nexus which must be present between the property and its insured for an insurable interest to attach. The literature refers to one of these as the legal interest theory [27] and to the other as the factual expectation theory. [28] ¶ 11 In Snethen v. Oklahoma State Union of the Farmers Educational and Cooperative Union of America, [29] we adopted the factual expectation theory of insurable interest. [30] Under this theory there is an insurable interest in property if the insured would gain some economic advantage by its continued existence or would suffer some economic detriment in case of its loss or destruction. [31] This is also the theory espoused by the provisions of 36 O.S.2001 § 3605.B., which define insurable interest as: any actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage or impairment. [32] Snethen held that the word lawful as used in § 3605.B. is not synonymous with the word legal and does not require the application of the legal interest theory, but is merely used in the sense that the interest was not acquired in violation of the law. [33] ¶ 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.