Insurable Interest at Time the Policy is Issued and at the Time of Loss are Essential to the Validity of Insurance Policy

In Foy v. Safeco Insurance Co., Foy was employed as an executive assistant for one of the attorney appellants, Sam Borek of the Law Offices of Borek and Associates. In February 2007,  Foy and her three children moved to a new rental property fifteen minutes away from the law firm’s office. However, her employer paid for Foy’s automobile, fuel, automobile insurance, and personal cell phone.  She was barely making ends meet. In 2007, Foy was involved in the purchase of an Ada Street property in Englewood. Foy did not contribute financially to the purchase of the property.  She executed a mortgage and a promissory note on July 10, 2007, in favor of Washington Mutual Bank (“Washington”) and acquired title to the property. Two days later, Safeco Insurance Co. (“Safeco”) issued Foy a homeowner’s insurance policy for the property. On July 18, 2007, a fire broke out, which damaged the vacant property. Foy was not residing in the home at the time. The Chicago Fire Department determined that the fire was intentionally set, but the identity of the arsonist was unknown. On July 23, 2007, Foy reported the loss to Safeco. On July 24, 2007, Sandra Parker, the adjuster, went out to the property to meet with Foy to assess the loss. Parker asked Foy to go inside to identify personal property, which Foy declined to do because she stated that she had never been in the house and did not know what was inside. Ronald Roszak, the Safeco field investigator, attempted to contact Foy several times between July 31, 2007, and October 9, 2007, to obtain her statement. However, Foy did not return his phone calls, did not agree to communicate with him, and would not provide him with any information concerning the claim. Meanwhile, Washington filed a mortgage foreclosure action against Foy.  Safeco alleged that Foy had no insurable interest and that Foy’s attorneys failed to conduct a reasonable investigation of the facts and failed to dismiss the suit, despite Foy’s misrepresentations of the facts.

The court addressed the question of whether  Foy had an insurable interest, since she signed the mortgage and obtained title to the property, in determining whether sanctions were warranted against Foy and her attorneys. Foy alleged that the suit had merit merely because she had documentary evidence consisting of “legal” title, mortgage, and an insurance policy. Safeco argued that these documents alone did not represent an adequate investigation into the facts of the dispute and that a reasonable inquiry would have uncovered the falsity of Foy’s claim.

An insurable interest at the time the policy is issued, and at the time of loss, is essential to the validity of an insurance policy. A person has an insurable interest in property whenever he or she profits or gains some advantage by its continued existence, or suffers loss or disadvantage by its continued existence, or suffers loss or disadvantage by its destruction. The reason for the requirement of an insurable interest is to prevent the use of insurance for illegitimate purposes. Safeco argues that the purchase of the property was a pretense to commit insurance fraud and that, at best, Foy’s attorneys turned a blind eye to this fraudulent effort instead of performing an investigation.

The court found that Ms. Foy made material misrepresentations to Safeco in pursuit of that claim. First, the entire purchase of the Ada property was but a pretense, so that she identifying herself as someone with an ownership interest in the residence by taking out the policy, was a misrepresentation, which was made before the loss. Regarding the court’s conclusions that Foy had no insurable interest despite having title, neither party cited, nor did the court find, an Illinois case on point. The court concludes that this claim should have been dropped years before trial, and it should have never been alleged in the first place. Foy’s false assertions regarding her interest in the property, her intent to move into the home, her request for her personal property losses, the cause of the fire, and her right to coverage were the bases for the entire action, without which there would be no dispute and no need for trial.

Foy v. Safeco Insurance Co., 2013 WL 5208230 (Ill. App. 1 Dist.).