§ 3.3 Insurable Interest - Expectancies

• Library: Guide to South Carolina Liability and Property Insurance Law (SCBar) (2019 Ed.)

§ 3.3 Insurable Interest - Expectancies

The South Carolina Supreme Court addressed whether an expectancy in the ownership of land constituted an insurable interest such that the party would be able to recover under the policy. In Belton v. Cincinnati Insurance Company,¹⁵ the claimant entered into a lease with an option to buy ("the Contract") with attorney. The Contract transferred possession of a commercial building and eleven and half (11 1/2) acres of land to the claimant.¹⁶ The Contract included a lease provision that provided for the claimant to pay the attorney $1,200 a month; a purchase provision stating that 80% of the monthly payments would apply to the purchase price; closing provision stating that closing would occur on or before November 1, 2002; and a penalty provision stating that a 5% penalty would be assessed for late monthly payments. The claimant fell behind on the payments and the attorney wrote the claimant two letters terminating the Contract and demanding that the claimant vacate the premises. When the claimant refused to vacate the premises, the attorney filed a rule to vacate or show cause and the claimant declared bankruptcy, which allowed him to remain in possession of the property.¹⁷

A few months after declaring bankruptcy, the claimant applied to insure the building with the insurer. Two days later, he applied for insurance with a second insurer. A week after applying for insurance, the building was destroyed by a fire and the claimant sought coverage under both policies. The first insurer denied the claim contending that the claimant lacked an insurable interest in the building. ¹⁸ The trial court granted summary judgment in favor of the insurer determining the claimant did not have an insurable interest; the Court of Appeals reversed, and the Supreme Court affirmed the trial court's decision.

In reaching its decision, the Court explained that "[a]though [it] d[id] not discount the possibility that an option to purchase land may create an insurable interest, [it] f[ound] that [the claimant] had no insurable interest in the destroyed property because he did not have equity in the property."¹⁹ The Court explained:

Our holding that a party cannot have an insurable interest in an option to purchase land if that party does not have equity in that land is consistent with our jurisprudence concerning insurable interest. Although, our courts have not used the word "equity", we have certainly equated a party's insurable interest in property with a party's personal stakes in that property. In Benton & Rhodes, Inc. v. Boden,²⁰ the court of appeals held that "to have an insurable interest in property, one must derive a benefit from its existence or suffer a loss from its destruction."... The next year, the court of appeals held that an insured may not recover insurance proceeds in excess of his interest in the property. Singletary v. Aetna Cas. Sur. Co.²¹... Therefore, our holding that an option cannot create an insurable interest where its holder has

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