Grand Prairie lawyers need to understand the legal purpose for insurance so that they can better advise clients about their cases.
The purpose for insurance is to compensate for a loss. It is not a way of gambling. The United States Supreme Court said in 1866, that an insurable interest is necessary for the following reasons:
To prevent gambling To reduce intentional loss To enforce the principle of equity Bringing this topic closer to the present a 1998, Tyler Court of Appeals case is worth knowing. It is styled, Stillwagoner v. Travelers Ins. Co.
Here is some relevant information:
This is a suit to determine who was entitled to the proceeds of an accidental death policy. The decedent’s employer procured a policy upon the lives of its employees without their knowledge, and named itself the beneficiary. The case presents the question of whether the employer had an insurable interest in the life of the decedent, and who is entitled to raise the issue of lack of insurable interest. Decedents surviving spouse and children contend that Travelers should have paid the $200,000 death benefit to the decedent’s estate, because her employer had no insurable interest in the decedent’s life. Travelers insists that the beneficiary’s lack of an insurable interest is an issue that can only be raised by the insurance company, and that, in any event, the proceeds were properly paid to the employer because the employer had an insurable interest in the life of its employee. This appeal is from a summary judgment in favor of Travelers Insurance Company, the employer, Advantage Medical Services, Inc., and its sole stockholder, Ronald Lummus. This case was reversed and remanded to the trial court.
Peggy Stillwagoner was a registered nurse who had worked over twenty-five years for various employers.
At the time of her death she had been employed by Advantage for several months on a temporary basis as a field nurse. Peggy was not an officer, director or stockholder of Advantage. She died in 1994.
Advantage provides in-home health care including nursing. The company had only four or five employees. Its president, Ron Lummus was its sole stockholder. In 1992, Advantage purchased an accidental death, dismemberment and total disability policy from Travelers covering all of its employees, including secretaries, nurses and its president, Ron Lummus. The policy provided that Travelers would pay the benefit upon the on-the-job accidental death, dismemberment or total disability of an “insured person”. The policy provision requiring benefits under the policy to be paid to the insured persons or their beneficiaries and giving the insured person the right to change beneficiaries had been amended by rider to provide that all benefits under the policy should be payable to Advantage and deleting the insured person’s right to change the beneficiary.
The record shows that Peggy’s husband knew nothing about the policy . A few days after the funeral Peggy’s husband Kenneth and one of her sons went to see Lummus to ask if there was any insurance covering her life. Lummus “tearfully” denied the existence of any insurance covering Peggy. In his deposition Lummus conceded that he bought the insurance for the benefit of the company, and that he intended that any benefits paid under the policy to be used for its “ongoing” operation.
After Peggy’s death, Travelers refused to pay the $200,000 death benefit to Advantage claiming that her death occurred outside the scope of her employment. Advantage brought suit and Travelers settled the litigation for $190,000. No money was paid to the Stillwagoners or to Peggy’s estate.
Kenneth Stillwagoner, individually and as representative of Peggy’s estate, sued Advantage and Lummus to recover damages resulting from Advantage’s failure to fulfill its promises of life insurance and other benefits equal to those offered by her former employer, which had induced her to leave her former employer to work for Advantage. Later Peggy’s three sons joined as Plaintiffs. The petition was amended to add Travelers as a defendant and to include a claim for the benefits of the insurance policy.
Shortly before the American Revolution, the Statute 14 George III, ch. 48 § 1 provided that no insurance should be made on a life in which the beneficiary had no interest. The earliest Texas decisions recognized the requirement that the persons for whom the policy was issued must have an insurable interest in the life of the person insured. Our Texas Supreme Court said that “it is against the public policy of this state to allow any one who ha s no insurable interest in the life insured to be the owner of a policy of insurance.” The court also explained the basis underlying the rule:
Our court has placed the inhibition against such contracts upon the sounder ground that the public, independent of the consent or concurrence of the parties, has an interest that no inducement shall be offered to one man to take the life of another.
To prove an insurable interest in the life of another, the putative beneficiary must fall into one of three general classes: (1) one so closely related by blood or affinity that he wants the other to continue to live, irrespective of the monetary considerations; (2) a creditor; and (3) one having a reasonable expectation of pecuniary benefit or advantage from the continued life of another.
Bluntly expressed, insurable interest under the third classification, is determined by monetary considerations, viewed from the standpoint of the beneficiary. Would he regard himself as better off from the standpoint of money, would he enjoy more substantial economic returns should the insured continue to live; or would he have more, in the form of the proceeds of the policy; should she die?
Travelers contend that Advantage falls within the third category, although Advantage had only hired Peggy as a temporary employee two months before her death. Nevertheless, they insist that she was a very competent nurse, well known in the community, who might have attracted additional home health care business for her employer had she lived and continued working for Advantage.
The mere existence of an employer/employee relationship is never sufficient to give the employer an insurable interest in the life of the employee.
This Court went on in their opinion and ended up saying that only the deceased’s heirs were entitled to recover under the policy.
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