Court Opinion

ID: 9847487
Source: CourtListenerOpinion
Date Created: 2023-09-24 04:00:41.237599+00
Date Added: 2024-06-11T09:17:17.318559
License: Public Domain

*371HEARN, C.J.,
dissenting:
Because I believe an unexercised option to purchase real estate does not qualify as an insurable interest, I respectfully dissent. As the majority noted, South Carolina appellate courts have yet to consider this particular issue. However, our courts have emphatically stated that to have an insurable interest in property, one must derive a benefit from its existence or suffer a loss from its destruction. Benton & Rhodes, Inc., v. Boden, 310 S.C. 400, 403, 426 S.E.2d 823, 825 (Ct.App.1993).
An option to purchase property imposes no obligation on the optionee. See Faulkner v. Millar, 319 S.C. 216, 220, 460 S.E.2d 378, 380 (1995) (“[Wjhile [a contract to sell and purchase real property] creates a mutual obligation ..., [an] option merely gives the right to purchase, at a fixed price, within a fixed time, without imposing any obligation to do so.”) As an optionee with no obligation to exercise his option, Belton did not stand to gain a pecuniary benefit or suffer a pecuniary loss because of the fire. Therefore, his unexercised option to purchase was a mere expectancy and did not qualify as an insurable interest. See Harris v. North Carolina Farm Bureau Mutual Ins. Co., 91 N.C.App. 147, 370 S.E.2d 700, 703 (1988); Travelers Indem. Co. v. Duffy’s Little Tavern, Inc., 478 So.2d 1095, 1096 (Fla.App. 5th Dist.1985), rev. denied, 488 So.2d 68 (Fla.1986); Erie-Haven, Inc. v. Tippmann Refrigeration Const. 486 N.E.2d 646, 650 (Ind.App.3d Dist.1985); Allstate Ins. Co. v. Thompson, 164 Ga.App. 508, 297 S.E.2d 520, 522 (1982); Vendriesco v. Aetna Cas. & Surety Co., 68 A.D.2d 946, 414 N.Y.S.2d 64, 65 (1979); Christ Gospel Temple v. Liberty Mut. Ins. Co., 273 Pa.Super. 302, 417 A.2d 660, 663 (1979), cert. denied sub nom., Presbyterian Church of Harrisburg v. Liberty Mut. Ins. Co., 449 U.S. 955, 101 S.Ct. 362, 66 L.Ed.2d 220 (1980). See also, Gossett v. Farmers Ins. Co. of Washington, 133 Wash.2d 954, 948 P.2d 1264 (1997) (en banc) (“[H]ope and expectations of acquiring the property in the future are insufficient to constitute an insurable interest.”)
Two fundamental purposes of the doctrine of insurable interest are to prevent insurance contracts from becoming gambling devices and to discourage the intentional destruction of property. Robert E. Keeton & Alan I. Widiss, Insurance *372Law, A Guide to Fundamental Principles, Legal Doctrines, and Commercial Practices, Practitioner’s Edition § 3.1(c), at 136-138 (1988). Allowing the holder of an option to purchase insurance prior to his exercise of the option invites the very misbehavior the doctrine of insurable interest endeavors to prevent. Belton’s situation is the perfect case in point. Here, Belton purchased insurance after he failed to make numerous payments toward his lease with option to purchase, after he received notice that his lease had been terminated, and after he was asked to vacate the premises. For Belton to receive any money now that the property is destroyed would put him in a better position than he was in prior to the fire. Such a result, in my opinion, could well encourage fraudulent and even criminal conduct.
The majority cites Neuman v. Travelers Indem. Co., 271 Md. 636, 319 A.2d 522 (Md.1974), for the proposition that the holder of an unexercised option to purchase property has an insurable interest in that property. I decline to read Neuman so broadly. In Neuman, the lessees of a warehouse had an insurance policy that covered tangible property. During the lease, a wall of the warehouse collapsed, and the lessees argued that their loss of use of the warehouse for the remainder of the lease’s term ought to be covered by their insurance because it constituted tangible property. Although the issue in Neuman did not involve the insurability of an option to purchase, the court did state that it was “familiar with the fact that [a] lessee has an insurable interest in property leased under certain circumstances, as where he has covenanted to return it in good order at the end of the term, has orally agreed to keep the premises insured, or where he has an option to purchase.” Id. at 531 (citing 3 G. Couch, Cyclopedia of Insurance Law § 24:60 (2d ed. R. Anderson I960)) (emphasis added). Notably, this statement was not outcome-determinative in the case. Moreover, the Maryland court only refers to a lessee who has an option to purchase, not someone like Belton who was merely a holder of an option. Finally, the statement does not shed any light on whether the holder of an unexercised option to purchase property would have an insurable interest.
The majority next cites G.M. Battery & Boat Co. v. L.K.N. Corp., 747 S.W.2d 624 (Mo.1988) (en banc) (5-2 decision), to *373support its conclusion that Belton’s option to purchase gave him an insurable interest in the property. However, L.KN.’s lease with option to purchase is significantly different from Belton’s lease. In G.M. Battery & Boat, Co., the terms of L.KN.’s lease required L.K.N. to obtain an insurance policy naming G.M. Battery as the loss payee. L.K.N. did obtain insurance, but it named itself as the loss payee. When a fire destroyed the building, L.KN.’s insurance carrier refused to pay for any part of the building loss, claiming that L.K.N. had no insurable interest in the building. The Supreme Court of Missouri disagreed and found that because L.K.N. “had bound itself to furnish insurance payable to GMB” and because L.K.N. “stood to lose the remaining six months on the lease, as well as the utility of the option and the rent credit on the option price,” it indeed had an insurable interest in the property. Id. at 627. Unlike L.K.N.’s lease, Belton’s lease did not require him to purchase insurance. Furthermore, because Belton’s lease was already terminated, he did not stand to lose any time remaining on the lease as was the case for L.K.N.
Finally, the majority relies on Morris v. Clay County Mutual Ins. Co., 1996 WL 251832 (Neb.Ct.App.1996), a case which has not been approved for publication. In the Morris case, the lower court granted the insurance company’s motion for summary judgment. The appellate court reversed, finding that because the Morrises presented evidence that they had an option contract to buy property and had been performing that contract by making $75 monthly payments, a finder of fact could determine the Morrises had an insurable interest in the property. Id. at *4 (emphasis added). Unlike the Morrises, Belton had not been performing on his lease with option to purchase.
Taking into consideration the purpose behind the doctrine of insurable interest and cases from other jurisdictions, I do not believe Belton had an insurable interest. Belton’s lease was terminated months before he obtained fire insurance. At the time of the fire, Belton merely had an obligation-free, unexercised option to purchase the building. Therefore, Belton derived no benefit from the property’s existence nor suffered any loss upon its destruction. Accordingly, Belton had no *374insurable interest, and the judgment of the trial court should be affirmed.