Castle Cars, Inc. v. U.S. Fire Ins. Co., 781705

• Citation: 273 S.E.2d 793,221 Va. 773
• Decision Date: 16 January 1981
• Docket Number: No. 781705,781705
• Parties: CASTLE CARS, INC. v. UNITED STATES FIRE INSURANCE COMPANY. Record
• Court: Supreme Court of Virginia

Page 793

273 S.E.2d 793

221 Va. 773

CASTLE CARS, INC. v. UNITED STATES FIRE INSURANCE COMPANY.

Record No. 781705.

Supreme Court of Virginia.

Jan. 16, 1981.

David B. Hagan, Norfolk (Dean P. Collias, Norfolk, on brief), for appellant.

Benjamin A. Hubbard, Chesapeake (Outland, Gray, O'Keefe & Hubbard, Chesapeake, on brief), for appellee.

Before CARRICO, HARRISON, COCHRAN, POFF, COMPTON and THOMPSON, JJ.

POFF, Justice.

This appeal poses the question whether a bona fide purchaser for value has an insurable interest in stolen property.

The facts are stipulated. Castle Cars, Inc. (the dealer), bought a used car for $2600 and received the seller's assignment of a title certificate issued by the Division of Motor Vehicles. That night the car was stolen from the dealer's lot. The dealer filed a claim under the theft provisions of its garagekeeper's liability insurance policy with United States Fire Insurance Company (the insurer). The insurer paid the claim, and the dealer assigned the title certificate to the insurer in accordance with the subrogation provisions of the policy. Subsequent investigation disclosed that the car had been stolen from its rightful owner, but since it bore a Vehicle Identification Number plate which had been transferred by the thief from a wrecked vehicle of similar description, the true owner was never identified. The car was never recovered, and the insurer filed suit for reimbursement from the dealer. Finding that the dealer had no insurable interest in the stolen vehicle, the trial court entered judgment for the insurer.

The question we consider is one of first impression in this Court. Although courts in sister states are divided on the issue, they agree that a property insurance contract is void unless the insured has an "insurable interest" in the property insured. J. Appleman, Insurance Law and Practice § 761 (1941). The reasons for the rule are grounded in public policy. "If ... one insures the property of another, the contract of insurance is void and carries with it temptations to crime into which we should not be led. It is against public policy." Liverpool, Etc., Ins. Co. v. Bolling, 176 Va. 182, 187, 10 S.E.2d 518, 520 (1940). "In absence of an interest in the property to be insured, (an insurance) contract becomes in essence a wager which will not be sanctioned by the courts." Skaff v. United States Fidelity & Guaranty Company, 215 So.2d 35, 36 (Fla.Dist.Ct.App.1968). "The anti-wagering considerations seem to be actually based on the fear that the insured will connive at the destruction of the property in order to profit from the insurance ...." Annot., 33 A.L.R.3d 1417, 1420 (1970).

Courts do not agree, however, upon what constitutes an insurable interest. The disagreement apparently stems from the disparate views expressed by Lord Lawrence and Lord Eldon in the old English case of Lucena v. Craufurd, 2 Bos. & Pul. (H.R.) 269, 127 Eng.Rep. 630 (1806). Note, Insurable Interest in Property in Virginia, 44 Va.L.Rev. 278, 279 (1958). Lord Lawrence believed that a person has an insurable interest if he has "some relation to, or concern in the subject of the insurance" which may be prejudiced "by the happening of the perils insured against" and he "is so circumstanced with respect to" the insured subject "as to have a moral certainty of advantage or benefit" sufficient to make him "interested in the safety of the thing." 2 Bos. & Pul. (H.R.) at 302, 127 Eng.Rep. at 643. Disagreeing, Lord Eldon felt that an interest is insurable only if it is a legal or equitable right enforceable in law or chancery. "(E)xpectation", he said, "though founded on the highest probability, (is) not interest", id., at 323, 127 Eng.Rep. at 651, and "(i)f moral certainty be a ground of insurable interest, there are hundreds, perhaps thousands, who would be entitled to insure" the same property, id. at 324, 127 Eng.Rep. at 651. In short, Lord Lawrence held that factual expectation, if grounded in moral certainty, was sufficient, while Lord Eldon required legal or equitable entitlement.

Our Court has indicated that it considers the Eldon view too restrictive. Although the interest held insurable in Tilley v. Connecticut Fire Ins. Co., 86 Va. 811, 11 S.E. 120 (1890), was an enforceable equitable right, the Court expressed a view in dictum much like that of Lord Lawrence:

"Any person who has any interest in the property, legal or equitable, or who stands in such a relation thereto that its destruction would entail pecuniary loss upon him, has an insurable interest to the extent of his interest therein, or of the loss to which he is subjected by the casualty."

Id. at 813, 11 S.E. at 120.

The Tilley dictum influenced later decisions. In Bolling, supra, we noted that "(e)verywhere there is a tendency to broaden the definition of an 'insurable interest;' neither legal nor equitable title is necessary." 176 Va. at 187, 10 S.E.2d at 520. There, in a suit on a fire insurance policy, the plaintiff alleged that her father-in-law had authorized her to use his building to conduct a business and had promised to give it to her later. On appeal from a judgment for the plaintiff, the insurance company contended that the plaintiff had no insurable interest in the building. Quoting the dictum in Tilley, we approved the following rule:

" 'Any title or interest in the property, legal or equitable, will support a contract of insurance on such 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 be benefited by its continued existence or suffer a direct pecuniary injury by its loss, his contract of insurance will be upheld, although he has no legal or equitable title.' 26 C.J. 20."

Id. at 188, 10 S.E.2d at 520.

In dissent, a minority of the Court observed that the plaintiff "did not have either the legal or equitable title to (the building), or any legal interest in it whatsoever." Id. at 197, 10 S.E.2d at 524. Yet, the majority concluded that "(t)o hold that (the plaintiff) had no pecuniary interests in continuing this business upon which she depended for support because she had no legal title is to stick in the bark", id. at 190, 10 S.E.2d at 521, and held that the plaintiff had an insurable interest to the full extent of the fee simple value of the building.

The rule approved by the majority was tacitly adopted by the General Assembly. By Acts 1952, c. 317, the term "insurable interest" was defined to mean "any lawful and substantial economic interest in the safety or preservation of the subject of insurance free from loss, destruction or pecuniary damage." Code § 38.1-331. We construed the effect of that statute in Insurance Company v. Dalis, 206 Va. 71, 141 S.E.2d 721 (1965). In that case, the State Highway Commissioner condemned the plaintiffs' property. Six days after the Commissioner filed his certificate of taking, two barns on the land were destroyed by fire, and the plaintiffs sued on their insurance policy. The insurance company maintained that, since title had passed when the certificate was recorded, the plaintiffs had no insurable interest in the property. Quoting the rule approved in Bolling, we said that Code § 38.1-331 "merely codified the decision and reasoning" of the majority opinion there. Id. at 75, 141 S.E.2d at 724. Finding that the title acquired by the Commission "was subject to defeasance", id. at 74, 141 S.E.2d at 723, and that the plaintiffs were "in possession and occupancy of the buildings" and had "a pecuniary interest ... that they needed to protect against their loss", id. at 76, 141 S.E.2d at 724, we held that "they had an insurable interest in them when they were destroyed by fire", id.

The plaintiffs in Bolling and Dalis had substantial economic interests in the property insured but no vested right, legal or equitable. The rule applied there closely resembles the Lawrence definition of insurable interest. ^*

Under the facts stipulated here, the dealer had an "economic interest in the safety or preservation of the subject of insurance", Code § 38.1-331, and that interest, measured by the purchase...