Insurable Interest in Building under Contract to be Demolished
In Murphy v. State Farm Fire and Casualty Co., Sean and Eric Murphy (Murphy) brought suit seeking recovery for fire damage to their property, which was insured by State Farm Fire and Casualty Company. In 2004, the Murphys bought a parcel of property with a multi-unit residential building at 2128 N. Winchester, Chicago, Illinois (the building). State Farm insured the building. Initially, tenants occupied three of the four units in the building. However, the Murphys never renewed any of the tenants’ leases as they began to consider demolishing the building and constructing a new residential luxury home on the property. The last tenant left the building in the fall of 2004. After the building was left vacant, the Murphys canceled all the utilities and had the gas meters removed. In front of the existing building, the Murphys had posted a sign advertising the sale of a new single-family luxury home that they considered constructing on the site. The sign contained pictures of the planned home with the caption, “Coming soon.” The Murphys had consulted an architect for the purpose of drawing up plans for the new home and obtained a loan. They also acquired permits from the City of Chicago for demolition. Six months after the Murphys signed the demolition contract, there was a fire. State Farm representatives surveyed the property and estimated the damage to the building at about $60,000. State Farm denied liability. It claimed that the Murphys concealed and misrepresented facts and also contended that the building had an actual value. The Murphys filed a claim in which they sought recovery for the fire damage and asserted claims for breach of contract and a statutory violation, pursuant to section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West 2006)), based on the unreasonable and vexatious delay to settle their claim. State Farm filed affirmative defenses and a motion for summary judgment in which it asserted that the Murphys had no insurable interest at the time of the fire.
The issue before the court is whether a property owner has an insurable interest when the building is under contract to be demolished but the demolition has not yet begun. Most Illinois courts have adhered to defining insurable interest as “a person has an insurable interest in the property whenever he would profit by or gain some advantage by its continued existence and suffer loss or disadvantage by its destruction.” A party may have an insurable interest in the property even if he or she does not possess the property or even own it. The court stated that an insurable interest should be determined at the moment of loss and should be determined by speculating about uncertain events. The mere existence of a demolition contract should not control whether the insured possessed an insurable interest in the property prior to the demolition beginning. Here, six months had elapsed since the Murphys entered into the contract to demolish the building and no physical destruction had started. A number of possible future events could have occurred that would cause the Murphys to not demolish the building.
The court held that the insured had an insurable interest in building at time of fire, even though they had previously contracted for demolition of building.
Murphy v. State Farm Fire and Casualty Co., 978 N.E.2d 649 (1st Dist., Ill. App. 2012).
