Opinion ID: 2320209
Heading Depth: 2
Heading Rank: 1

Heading: Effect of the Court's Approval of the Contract of Sale on Mr. Berrett's Insurable Interest

Text: Standard Fire alleges that, because the circuit court had approved the sale of 4305 Gallatin Street on November 9, 2000, Mr. Berrett no longer possessed an economic interest in the property on November 25 when the home was destroyed by fire. We disagree. Insurable interest is defined in Section 12-301 of the Insurance Article, as an actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance against loss, destruction, or pecuniary damage or impairment to the property. Maryland Code (1997), Section 12-301(a) of the Insurance Article. Whether an individual holds an insurable interest is defined statutorily at the time of the loss, rather than at the time of the contract. Maryland Code (1997), Section 12-301(b) of the Insurance Article. Mr. Berrett contends that he owned an indefeasible, vested remainder, which constitutes an insurable interest at the time of the fire. A vested, indefeasible remainder is a present, fixed right to future enjoyment, and is an estate which the owner can convey or devise or which descends in case of intestacy to his heirs. Myers v. Myers, 185 Md. 210, 221, 44 A.2d 455, 460 (1945). A remainder interest is any future interest limited in favor of a transferee in such manner that it can become a present interest upon the expiration of all prior interests simultaneously created, and cannot divest any interest except an interest left in the transferor. 2 Restatement of Property § 156, at 535 (1936). The term vested connotes that the assumption of the estate by the remainderman is not contingent upon any prerequisites, but rather the remainderman stands ready to take [the property] immediately on the termination of prior . . . estates. In re Trust of Lane, 323 Md. 188, 195 n. 4, 592 A.2d 492, 496 n. 4 (1991), quoting 1 American Law of Property § 4.2, at 408 (A. James Casner ed. 1952). Indefeasible means that the person granted the future interest cannot be divested of that interest. In re Trust of Lane, 323 Md. at 197, 592 A.2d at 497 (holding that remainder interest was defeasible because the interest may be defeated by a subsequent occurrence before the termination of the precedent estate). [4] We explored the insurable interests of remaindermen and life tenants in Forbes v. American International Insurance Co., 260 Md. 181, 271 A.2d 684 (1970), when faced with the question of whether a succeeding life tenant was entitled to the proceeds of a fire insurance policy procured by the preceding life tenant. In explicating the general rule, we explained that: [T]he dictum found in Legge v. Canty shows rather clearly that this Court some years ago manifested a disposition to follow the general rule were the issue to be presented to it. In that case Judge Offutt, writing for the Court, stated: Ordinarily, in the case of a life tenancy the life tenant would insure his interest, and the remaindermen would insure their interests. Id. at 186, 271 A.2d at 686 (citations omitted), quoting Legge v. Canty, 176 Md. 283, 289, 4 A.2d 465, 468 (1939). By so stating, we adopted the majority view that, absent a contract or fiduciary duty, neither the life tenant, nor the remainderman, is obligated to insure the other's interest, but rather, both must individually insure his or her own interest. Forbes, 260 Md. at 184-85, 271 A.2d at 685, quoting Thompson v. Gearheart, 137 Va. 427, 119 S.E. 67, 68 (1923). Therefore, a remainderman does have an insurable interest. Did, however, the court's approval of the contract of sale of the property in this case divest Mr. Berrett of his insurable interest as a remainderman? It is well settled in Maryland that a contract of sale of real property vests equitable title to the property in the purchaser, while the seller retains legal title. We addressed this distinction in Himmighoefer v. Medallion Industries, Inc., 302 Md. 270, 487 A.2d 282 (1985), in which a construction vendor attempted to obtain a mechanic's lien against a property after the owner had entered into a contract for its sale. Holding that the creditor could not obtain a lien on the property, we explained that the effect of such a contract is to vest the equitable ownership of the property in the vendee, subject to the vendor's lien for unpaid purchase money, and to leave only the legal title in the vendor pending the fulfilment of the contract and the formal conveyance of the estate. The right of the vendee to have the title conveyed upon full compliance with the contract of purchase is not impaired by the fact that the vendor, subsequently to the execution of the contract, incurred a debt upon which judgment was recovered. Id. at 279, 487 A.2d at 287, quoting Kinsey v. Drury, 146 Md. 227, 232, 126 A. 125, 127 (1924). See also Knight v. Princess Builders, Inc., 393 Md. 31, 49, 899 A.2d 156, 167 (2006); DeShields v. Broadwater, 338 Md. 422, 438, 659 A.2d 300, 307 (1995); Watson v. Watson, 304 Md. 48, 60, 497 A.2d 794, 800 (1985). In Kingsley v. Makay, 253 Md. 24, 251 A.2d 585 (1969), we addressed whether a judgment entered against a purchaser of real property established a lien on the property where the judgment was obtained after the purchaser entered into the contract of sale, and after he had assigned his interest in the property to another party. In holding that the judgment did not establish a lien on the property, we explained that the assignment of the purchaser's equitable interest in the property was valid, despite never being recorded, because there was no requirement that a contract of sale be recorded. Id. at 28, 251 A.2d at 587. The contract of sale, vesting equitable title in the purchaser, as we explained, is distinguishable, however, from the completion of the sale in that legal title to land, of course, does not pass, other than by operation of law, until a deed is properly executed and recorded. Id. at 27, 251 A.2d at 587. See also Maryland Code (1974, Repl. Vol. 1996), Section 3-101(a) of the Real Property Article; Childs v. Ragonese, 296 Md. 130, 139 n. 8, 460 A.2d 1031, 1036 n. 8 (1983) (acknowledging that in Maryland, legal title does not pass until the deed is executed and recorded). In the present case, settlement had not occurred, so that a deed to the property in the judicially-approved purchaser's name had not been executed, nor recorded. We have acknowledged that an insurer remains responsible to indemnify the insured seller on losses incurred after the contract is entered into, but before the sale of the property is completed. In Washington Fire Insurance Co. v. Kelly, 32 Md. 421 (1870), two insurers denied claims made after fire had destroyed the insured's property, contending, among other things, that the insurance contracts were rendered null and void by the insured's contract to sell the property entered into before the time of the fire. We agreed with the insurers in that, [t]here is no doubt that an insurance against fire without an interest in the subject-matter insured is a wagering contract, which the law does not sanction; and it is, therefore, necessary that the insured should have an interest in the property insured, not only at the time of the insurance, but when the loss by fire occurs. If the insured sell the property, and transfer all his interest therein, or assign all interest in the policy, before the loss happens, he cannot recover. . . . Id. at 435-36 (emphasis in original). We determined, however, that to prevent the recovery for any loss by fire, the sale or conveyance must be made out full and complete. Id. at 436. To constitute a complete sale the right to the property sold and to the possession thereof, must pass from the vendor to the vendee. Id. at 436. A mere contract for the sale or conveyance, however, will not divest the title of the vendor and vesting the same in the vendee, and therefore does not constitute a complete sale. Id. We held that the sale of the property was not completed at the time of the loss, and therefore the insured as the vendors of the property, before the actual conveyance thereof, held an insurable interest therein. Id. at 437. Thus, a contract of sale of real property, taken alone, before settlement, will not negate the insured's ability to recover from a loss by fire. [5]