Etterle v. Excelsior Ins. Co. of New York

• Decision Date: 23 May 1980
• Citation: 428 N.Y.S.2d 95,74 A.D.2d 436
• Parties: Stefan and Justyna ETTERLE and Stephen Etterle, Respondents, v. EXCELSIOR INSURANCE CO. OF NEW YORK, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 95

428 N.Y.S.2d 95

74 A.D.2d 436

Stefan and Justyna ETTERLE and Stephen Etterle, Respondents, v. EXCELSIOR INSURANCE CO. OF NEW YORK, Appellant.

Supreme Court, Appellate Division, Fourth Department.

May 23, 1980.

Brown, Kelly, Turner, Hassett & Leach, Buffalo, for appellant (Michael Pilarz, Buffalo, of counsel).

Naples, Giarrano & Carlisi, Grand Island, for respondents (Roy Carlisi, Jr., Grand Island, of counsel).

Before CARDAMONE, J. P., and SIMONS, SCHNEPP, DOERR and WITMER, JJ.

SCHNEPP, Justice.

In this action the plaintiffs, Stefan and Justyna Etterle and their son, Stephen Etterle, seek to recover the proceeds of a fire insurance policy which was issued by the Excelsior Insurance Company of New York ("Excelsior") on November 22, 1974 to Stefan and Justyna and insured their two-family dwelling at 327 Fulton Street, Buffalo, New York. In their complaint plaintiffs allege that on October 1, 1977 while the policy was in full force and effect, the property was destroyed by fire and plaintiffs suffered damage of $29,279.41 for the loss of their dwelling plus $100 per month loss of rental, and that Excelsior has refused to pay the proceeds of their policy. In a separate cause of action plaintiff Stephen alleges that his parents transferred title of the premises to him on August 29, 1977 "solely as a matter of convenience due to (their) ill health" and gave him an executed power of attorney under which he contends that he is the legal representative of his parents. Stephen further alleges that during September 1977 his mother was admitted to a nursing care facility due to her ill health and that his father, also in ill health, left the insured premises to reside temporarily with him.

Excelsior claims it is not liable on the policy because (1) Stefan and Justyna transferred their title to the property and no longer possessed an insurable interest in the covered premises at the time of the fire, and (2) Stephen, although he may have had an insurable interest in the premises at the time of the fire, was not a party to the insurance contract and has no rights to the policy proceeds. Excelsior contends that a failure to allege an insurable interest in the destroyed premises requires dismissal of Stefan's and Justyna's pleading and that Stephen's failure to allege a contractual or other legal right to the proceeds of the insurance policy requires dismissal of his cause of action. Excelsior appeals from an order of Special Term which denied its motion to dismiss plaintiffs' complaint for failure to state a cause of action (CPLR 3211, subd. (a), par. 7).

In an affidavit in opposition to defendant's motion, plaintiffs claim that Stefan and Justyna hold an insurable interest in the premises because they reside therein and intend to maintain the dwelling as a residence. They further contend that Stephen also holds an insurable interest because he holds title to the premises and intends to derive income from the rental of the property and may recover on the policy because he is the legal representative of his parents.

It has long been the rule that, in order to prevent fraud and crime and to prohibit wagering contracts on property in which the insured possesses no interest, the lack of an insurable interest in the property insured renders the property insurance void and unenforceable (Scarola v. Insurance Co. of North Amer., 31 N.Y.2d 411, 413, 340 N.Y.S.2d 630, 292 N.E.2d 776; Riggs v. Commercial Mut. Ins. Co., 125 N.Y. 7, 11-12, 25 N.E. 1058). Section 148 of the Insurance Law requires an "insurable interest" in the covered property which is "deemed to include any lawful and substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary damage." The statute codifies the liberal interpretation applied by the courts in construing the interest necessary to constitute an insurable interest and recognizes that "(a)ny right which may be enforced against the property, and which is so connected with it that its injury or destruction will cause loss . . ." is an insurable interest (30 N.Y. Jur., Insurance, § 752, p. 105; see, also, Scarola v. Insurance Co. of North Amer., supra; Riggs v. Commercial Mut. Ins. Co., supra; National Filtering Oil Co. v. Citizen's Ins. Co. of Missouri, 106 N.Y. 535, 541, 13 N.E. 337; 44 C.J.S., Insurance, § 175, subd. (b), p. 870; 3 Couch, Insurance (2d ed.), § 24:13, pp. 86-88).

Two early Court of Appeals cases, on facts quite similar to the instant case, support the view that Stefan and Justyna retained an insurable interest in the property even though they had parted with legal title in favor of their son. In Redfield v. Hol. Pur. Ins. Co., 56 N.Y. 354, 357, the plaintiff has occupied and worked a farm, although his wife held legal title to the property. Apparently there was an oral promise that plaintiff could have a life estate in the property. The court held that if the plaintiff had an equitable right to the possession of the land under a parol agreement he had an insurable interest in the property. In Berry v. Am. Cent. Ins. Co. of St. Louis, 132 N.Y. 49, 57, 30 N.E. 254, plaintiff had transferred legal title to his home to his son under an oral agreement that the plaintiff father was to occupy the premises for the duration of his life, keep the property insured, and pay real property taxes. When the property was destroyed by fire, the insurance company refused to pay the proceeds to the father on the grounds that he no longer had an insurable interest. The court cited the "well settled" rule that it was not necessary for the insured to have a legal or equitable interest in the property destroyed "if . . . he would be liable to loss if it is destroyed or injured" (Berry v. Am. Cent. Ins. Co. of St. Louis, supra, p. 56, 30 N.E. p. 255). The court stated: "The test of insurable interest is whether an injury to the property or its destruction by the peril insured against, would involve the assured in pecuniary loss" (Berry v. Am. Cent. Ins. Co. of St. Louis, supra, p. 56, 30 N.E. p. 255). Even though the father may not have been able to enforce the right to use the property against his son because of the parol nature of the agreement, the court held that the father did have an insurable interest.

Stefan and Justyna may seek to establish at trial that they conveyed legal title to their property based on an oral understanding with their son that they would be able to remain on the premises if their health permitted. Moreover, if any dispute arose between the parents and their son, all requirements for imposing a constructive trust appear to exist so that Stephen would be deemed to hold the property as a trustee in favor of his parents. What was said about the grantor's position in Sharp v. Kosmalski, 40 N.Y.2d 119, 122, 386 N.Y.S.2d 72, 75, 351 N.E.2d 721, 724 applies as well here:

"Indeed, in the case before us, it is inconceivable that plaintiff(s) would...