Hunter v. State Farm Fire and Cas. Co.

• Decision Date: 07 April 1989
• Citation: Hunter v. State Farm Fire and Cas. Co., 543 So.2d 679 (Ala. 1989)
• Parties: Ida Mae HUNTER v. STATE FARM FIRE AND CASUALTY COMPANY, et al. 87-1334.
• Court: Alabama Supreme Court

Page 679

543 So.2d 679

Ida Mae HUNTER v. STATE FARM FIRE AND CASUALTY COMPANY, et al.

87-1334.

Supreme Court of Alabama.

April 7, 1989.

Edward L. Ramsey, Birmingham, for appellant.

Thomas A. Woodall of Rives & Peterson, Birmingham, for appellee.

PER CURIAM.

This is an appeal from a summary judgment in favor of State Farm Fire and Casualty Company ("State Farm") and its agent, Bobby Baker, in an action by Ida Mae Hunter based on breach of contract and negligence. We reverse.

Ida Mae Hunter and her husband, Howard K. Hunter, acquired their house in Fultondale, Alabama, by warranty deed in 1962. Mr. Hunter died in 1969. In 1970, Mrs. Hunter purchased a homeowner's insurance policy from State Farm through its agent Bobby Baker. This policy insured Mrs. Hunter's interest in the home and the personal property in the home. The policy was renewed each year and was in effect on October 7, 1985, when the insured premises was destroyed by fire.

Mrs. Hunter did not live in the house after her hospitalization in 1982. After staying with a daughter and then living in Florida for a short time, Mrs. Hunter, in 1984, established her residence in an apartment complex for senior citizens. Mrs. Hunter informed State Farm of her change of residence in a letter dated June 1984; State Farm forwarded this letter to Baker, who put it in Mrs. Hunter's file. Mrs. Hunter, however, continued to pay the policy premiums when they were due. Mrs. Hunter's son suffered a theft loss at the house in February 1985, and the claim for this loss was paid by State Farm.

State Farm denied Mrs. Hunter's claim for the loss of the house, contending that Mrs. Hunter did not have legal title to the house. State Farm based its conclusion on the fact that in 1982, while hospitalized after a heart attack, Mrs. Hunter had signed a warranty deed transferring legal title to the house to her children. Mrs. Hunter claims, however, that she was misinformed about the nature of the instrument and that she thought the document she signed in the hospital provided that her home would go to her children upon her death. In addition, Mrs. Hunter continued to pay taxes on the home. Her grandson lived in the house and apparently paid her rent "once or twice." He also agreed to keep up the house for her. She kept most of her belongings, other than personal effects, in the house while she lived in the apartment. Part of the reason she moved into the apartment was that it was thought the house had too many stairs for someone in her condition, and it can be inferred that when her health improved the stairs would not be an obstacle. She maintained that she always intended to return to the house and that she had begun fixing it up for her return.

Mrs. Hunter sued her children, seeking a declaration of rights in the subject property, claiming in particular that the children held the property in a constructive trust. Mrs. Hunter sued State Farm for breach of the terms of the contract of homeowner's insurance. She also sued State Farm and its agent, Bobby Baker, for negligently failing to maintain the insurance to protect her interest in the home and the personal property in it. In its answer, State Farm asserted that Mrs. Hunter did not have an insurable interest in the property damaged by the fire and that State Farm was not guilty of negligence. Bobby Baker's answer denied Mrs. Hunter's claim of negligence on his part. The trial court granted Baker's motion for summary judgment.

The trial court also granted State Farm's motion for summary judgment, except as to Mrs. Hunter's claim for the value of her personal property that had been destroyed by the fire. State Farm acknowledged its liability for the loss of the personal property, but disputed the value of the loss claimed. After State Farm and Mrs. Hunter reached a settlement on the value of her personal property loss and filed a stipulation to that effect, Mrs. Hunter's claim for the loss of her personal property was dismissed. ¹

On appeal, Mrs. Hunter first claims that State Farm was negligent in failing to provide her with insurance coverage for the subject property. The record is clear, however, that the insurance policy that Mrs. Hunter had purchased for her home was in full force and effect at the time the home was destroyed by fire. The question remains, and was raised by Mrs. Hunter as her second issue on appeal, whether State Farm was justified, under the terms of the policy and the law of Alabama, in refusing to honor Mrs. Hunter's claim for loss.

Alabama Code 1975, § 27-14-4, provides:

"(a) No contract of insurance of property or of any interest in property, or arising from property, shall be enforceable as to the insurance except for the benefit of persons having an insurable interest in the things insured as at the time of the loss.

"(b) 'Insurable interest,' as used in this section, means any actual, lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction or pecuniary damage or impairment.

"(c) The measure of an insurable interest in property is the extent to which the insured might be damnified by loss, injury or impairment thereof."

The statute is a codification of the longstanding rule in Alabama that, in order to receive benefits for a loss under a contract of property insurance, an insured must have an "insurable interest" in the insured property. National Security Fire & Casualty Co. v. Newman, 53 Ala.App. 614, 303 So.2d 113 (1974). This principle of law is also made part of the language of insurance contracts, such as the instant policy, by words to the effect that the "insured" must be the resident of the insured property.

The Court of Civil Appeals in Ex parte Granite State Ins. Co., 362 So.2d 241 (Ala.1978), correctly held that Alabama law recognizes an insurable interest based upon a "factual expectation" theory as opposed to a "legal...