New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Howard Mills
Acting Superintendent

The Office of General Counsel issued the following opinion on April 4, 2005, representing the position of the New York State Insurance Department.

Re: Homeowners Insurance / Insurable Interest

Question Presented:

In order to be named as an insured on a policy of homeowners insurance, must a person have an insurable interest in the property insured?

Conclusion:

Pursuant to N.Y. Ins. Law § 3401 (McKinney 2000), a policy insuring a property located in this state is enforceable only to the extent that it benefits a person having an insured interest in that property. But homeowners insurance includes two separate components, property insurance and liability insurance. N.Y. Ins. Law § 3401 (McKinney 2000) applies only to property insurance, not liability insurance. It is not necessary for a party to have an insurable interest in the insured property in order for the liability component of the insurance to be valid and enforceable. So long as the party has a risk exposure that will be covered by the homeowners insurance the liability coverage will be valid and enforceable to the party’s benefit.

Facts:

The owner of a co-operative apartment unit, which is located in Nassau County, insures the unit under a homeowners policy (form HO-6). The "homeowner’s association" for the building has notified the owner that it wishes the insurance to be amended to name the association as an additional insured.

Analysis:

N.Y. Ins. Law § 3401 (McKinney 2000), entitled "Insurable interest in property", reads as follows:

No contract or policy of insurance on property made or issued in this state, or made or issued upon any property in this state, shall be enforceable except for the benefit of some person having an insurable interest in the property insured. In this article, "insurable interest" shall include any lawful and substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary damage.

The provided facts did not disclose whether the homeowners association has an insurable interest in an individual apartment. However, a standard homeowners policy provides for property insurance coverage and liability insurance to protect the insured(s) from certain losses, including injury to other parties occurring either on the insured property or caused by activity originating on the insured property. N.Y. Ins. Law § 3401 (McKinney 2000) applies only to property insurance, not liability insurance.

It is not necessary for a party to have an insurable interest in the insured property in order for the liability component of the insurance to be valid and enforceable. So long as the party has a risk exposure that will be covered by the homeowners insurance the liability coverage will be valid and enforceable to the party’s benefit. If the homeowner’s association has a risk exposure (i.e. it would likely be joined as a party defendant in an action against the named insured) then it could be an additional insured under the policy and the liability coverage would be valid and enforceable vis--vis the association.

For further information one may contact Associate Attorney Sam Wachtel at the New York City Office.