Benton & Rhodes, Inc. v. Boden

• Citation: 310 S.C. 400,426 S.E.2d 823
• Decision Date: 12 November 1992
• Docket Number: No. 1937,1937
• Court: South Carolina Court of Appeals
• Parties: BENTON & RHODES, INC., Respondent, v. Kenneth Henry Edmund BODEN, An Underwriter at Lloyd's, London, on behalf of Himself and all those other Lloyd's underwriters subscribing to Insurance Policy Number NPC 33309, Appellant. . Heard

Page 823

426 S.E.2d 823

310 S.C. 400

BENTON & RHODES, INC., Respondent, v. Kenneth Henry Edmund BODEN, An Underwriter at Lloyd's London, on behalf of Himself and all those other Lloyd's underwriters subscribing to Insurance Policy Number NPC 33309, Appellant.

No. 1937.

Court of Appeals of South Carolina.

Heard Nov. 12, 1992.

Decided Jan. 11, 1993.

Clifford L. Welsh and Mary Ruth M. Baxter, Conway, for appellant.

A.G. Solomons, Jr., and Winston A. Lawton, Jr., Estill, for respondent.

SHAW, Judge:

Respondent, Benton & Rhodes, Inc., brought this action against appellant, insurer, alleging breach of an insurance contract and bad faith refusal to pay benefits arising from the denial of coverage under an insurance policy. The case was tried before a jury which returned a verdict for respondent. The insurer appeals. We affirm in part and reverse in part.

The record reveals the following. On November 18, 1988, respondent, a wood and pulp producing business, entered into a contract of insurance covering, among other items, a piece of equipment called a fellerbuncher. The insurance was obtained through Mr. William Bryant, who took an application from respondent and forwarded it to a broker for Lloyd's of London. The policy was issued under the general cover of Lloyd's of London or underwriters at Lloyd's. The master policy remained in London and neither Mr. Bryant nor the respondent ever read it. Although respondent admits receiving a cover sheet showing the equipment and the amount of coverage, it denies receiving the policy itself or any other documentation relating to it before a loss occurred. There is some indication that Mr. Bryant attached what is known as an NPC (Nicolls Pointing Coulson Ltd.) contractor's equipment form to all cover notes as a matter of office practice, but his testimony is confusing as to whether he sent this to respondent. The NPC form contained the following language:

This entire policy shall be void if the assured has concealed or misrepresented any material fact or circumstances concerning this insurance or the subject thereof; or in the case of any fraud or false swearing by the assured touching any matter relating to this insurance or the subject thereof, whether before or after a loss.

Several months after the insurance contract was entered, respondent agreed to sell the fellerbuncher and some other equipment to Mr. Marion Brooks, a logger who had been producing wood for respondent for a number of years. Mr. Brooks had lost some of his own equipment and respondent agreed to sell him the fellerbuncher in order to increase production. Mr. Benton, a shareholder of Benton & Rhodes, Inc., testified they agreed to sell the equipment to Mr. Brooks and it would be his when he finished paying for it. He further stated he and the other shareholder, Mr. Rhodes, went to the bank with Mr. Brooks and obtained a $150,000 loan for the purchase of the equipment. All three gentlemen signed as co-makers of the note dated February 2, 1989. Additionally, they all signed a security agreement in favor of the bank.

Respondent executed a bill of sale to Mr. Brooks for the equipment dated February 2, 1989. Mr. Brooks signed a document entitled "Security Agreement" dated January 13, 1989 which purported to give respondent a security interest in the equipment. This security agreement was not signed by respondent.

Respondent made monthly payments on the loan and would deduct a weekly amount of $1,175 from Mr. Brooks' production account. When Mr. Brooks' production was too low to cover the $1,175 deduction, respondent would continue to make the note payments and make up the shortfall when his production was back up. At the time of the trial, the note was current and Mr. Brooks was one payment behind in his obligation to respondent.

On September 13, 1989, fire destroyed the fellerbuncher and shortly thereafter, respondent made a claim under the policy. The appellant investigated and denied the claim. Respondent brought this action alleging breach of contract and bad faith refusal to pay. Appellant answered denying respondent had an insurable interest and asserting the policy was void based on concealment of the material fact that there was a change of ownership thereby changing the risk involved. The trial judge directed a verdict for appellant on the bad faith cause of action. The cause of action for breach of contract was submitted to the jury which returned a verdict for respondent.

Appellant first contends the trial judge erred in failing to grant its motions for directed verdict, judgment notwithstanding the verdict and new trial as there was no evidence presented at trial showing respondent had an insurable interest in the equipment at the time of the loss and there was no evidence of damages sustained by the respondent. We disagree.

In Powell v. Insurance Company of North America, 285 S.C. 588, 330 S.E.2d 550 (Ct.App.1985), this court reiterated the definition of "insurable interest" set forth by our Supreme Court in Crook v. Hartford Fire Insurance Co., 175 S.C. 42, 178 S.E. 254 (1935) as follows:

It may be said, generally, that any one has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction.

An insurable interest in property is any right, benefit or advantage arising out of or dependent thereon, or any liability in respect thereof, or any relation to or concern therein of such a nature that it might be so affected by the contemplated peril as to directly damnify the insured.

44 C.J.S. Insurance § 180 (1945) provides:

Any title to, or interest in, property, whether legal or equitable, and however slight or uncertain in duration, will support a contract of fire insurance on the property. The term "interest," as used in the phrase "insurable interest," is not limited to property or ownership in the subject matter of the insurance; where the interest of insured in, or his relation to, the property is such that he will, or may, be benefited by its continued existence or suffer a direct pecuniary loss from its destruction or injury by fire, his contract of insurance will be upheld, although he has no title, either legal or equitable, no property right or interest, no estate, no lien, and no possession or right of possession. Thus an insurable interest in property may arise from some liability which insured incurs with relation thereto, although he is not in possession of the property, and has no interest therein beyond the danger of pecuniary damage from the loss of the property by reason of such assumed liability. Such liability may arise by force of statute or by contract, or may be fixed by law from the obligations which insured assumes.

Further, 43 Am.Jur.2d Insurance § 943 (1982) states:

The principle may be stated generally that anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction.

Policies will be maintained where it is clear that the party insured had an interest which would be injured in the event the peril insured against should happen. It is not necessary to constitute an insurable interest that the interest be such that the event insured against would necessarily subject the insured to loss; it is sufficient that it might do so, and that pecuniary injury would be the natural consequence. Moreover, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured. For instance, although a person has no title, legal or equitable, in the property, and neither possession nor right to possession, yet he has an insurable interest therein if it is primarily charged in either law or equity with a debt or obligation for which he is secondarily liable.

And 43 Am.Jur.2d Insurance § 960 (1982) provides:

A mortgagee of real or personal property has an insurable interest to the extent of the mortgage debt, even after he has assigned the mortgage, if he has guaranteed its payment or is liable upon his indorsement of the notes secured by the mortgage.

(emphasis added).

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