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

Eliot Spitzer
Governor

Eric R. Dinallo
Superintendent

The Office of General Counsel issued the following opinion on December 17, 2007 representing the position of the New York State Insurance Department.

Re: Homeowners Insurance/Insurable Interest

Questions Presented:

1) May a homeowners’ association (“the association”) be named as an insured on a residence owner’s homeowners insurance policy?

2) Is the insurer required to act upon an insured homeowner’s request to add the association as an insured on the homeowner’s policy?

Conclusions:

1) Yes. The association may be named as an insured on a residence owner’s homeowners insurance policy. However, the property coverage would be unenforceable by the association except to the extent that it has an insurable interest in the covered property.

2) No. So long as the insurer’s actions are consistent with its underwriting requirements, it can not be compelled to add the association as an additional insured.

Facts:

The inquirer reports that he is the Vice-President of the Board of Directors of a Homeowners’ Association (“the association”) for a community of 646 homes located on Long Island. One of the sections in the association’s Offering Plan, which all homeowners are required to execute, provides that each homeowner shall obtain insurance of his home that “shall name the Board of Directors as an additional insured.“ The provision goes on to state that:

If the insurance provided under this Section has not otherwise been adequately obtained by each owner, as determined by the Board of Directors, then the Board shall obtain such insurance coverage. Such insurance shall be sufficient to cover the full replacement cost or necessary repair or reconstruction work. The purpose of such insurance will be to protect, preserve and provide for the continued maintenance and support of separately owned homes.

The inquirer asks whether under the circumstances, the association has an insurable interest.

Analysis:

A standard homeowners insurance policy provides both property and liability coverage. The property coverage compensates the insured for loss or damage to specified property, typically owned or leased by the insured. The liability provisions provide coverage against claims by a third party, for injury to that person, or damage to that person’s property, typically where the injury or damage occurs on the insured’s premises or are caused by activity arising from the insured’s covered property.

Insurance Law § 3401, entitled "Insurable interest in property", is relevant to your inquiry. That statute 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.

In Scarola v. Insurance Company of North America, 31 N.Y.2d 411 (1972), New York’s highest court, the Court of Appeals, defined an “insurable interest” as follows:

In general a person has an insurable interest in the subject matter insured where he has such a relation or connection with, or concern in, such subject matter that he will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. Id. at 412-13.

A person with an insurable interest would benefit from the property’s continued existence and would suffer economic loss if it was damaged or destroyed. The insurable interest statute, however, applies only to property insurance, and not to liability insurance. Nor is there any other section of the Insurance Law that imposes an insurable interest requirement on the part of the insured with respect to liability insurance.

Since there is no insurable interest requirement for liability coverage, there is no prohibition against any person being named as an insured under a policy. However, as a practical matter, only a person that has a risk exposure (i.e., the potential for being named as a defendant in an action against the individual homeowner) would have reason to be named as an insured on a homeowner's insurance policy.

Hence, a homeowners’ association may be named as an insured on an individual owner’s homeowners insurance policy. However, the property coverage would be unenforceable by the association, except to the extent that it has an insurable interest in the property. In the absence of further specific information, the Department at this time can offer no opinion as to whether the association here in fact has an insurable interest in the individual houses in the subject residential development.

Finally, there is no provision in the Insurance Law or regulations promulgated thereunder that would require the insurer to add the association as an “additional insured” on an individual property owner’s homeowners insurance policy.

For further information, you may contact Supervising Attorney Sam Wachtel at the New York City office.