July 27, 2000
TECHNICAL LAND, INC., APPELLANT,
FIREMEN'S INSURANCE COMPANY OF WASHINGTON, D.C., APPELLEE.
Before Terry and Ruiz, Associate Judges, and Kern, Senior Judge.
The opinion of the court was delivered by: Ruiz, Associate Judge
Appeal from the Superior Court of the District of Columbia (Hon. Geoffrey M. Alprin, Trial Judge)
Argued April 22, 1999
This appeal raises a novel issue concerning the type of interest - other than one based on legal or equitable title - that is insurable. We hold that an insurable interest in property can be shown when a party stands to benefit economically from a unique property or to suffer loss from its destruction, and that Technical Land should have the opportunity to make the necessary showing.
The relationships among the various entities in this appeal are somewhat involved and complicated by legal and bankruptcy procedures, so we describe them in some detail. Technical Land, Inc., the plaintiff-appellant, is a District of Columbia corporation in which William Moore and Judith Deitz Moore are the sole stockholders. Techniarts Video International, Inc. (TVII), also owned and operated by the Moores, had a Use Agreement which allowed it to occupy the property at 1631 Kalorama Road. Techniarts Engineering (Techniarts) is a partnership owned by the Moores which owned equipment that was damaged by water when pipes burst at the building on 1631 Kalorama Road. The subject of this appeal is Technical Land's insurance claim concerning damage to the building itself, not to Techniarts' equipment. *fn1
Techniarts had a business relationship with 1631 Kalorama Associates, the owners of the property at 1631 Kalorama Road, for the purpose of building and developing a motion picture studio on the premises. *fn2 On December 11, 1991, Techniarts filed suit against Kalorama Associates and obtained a judgment in the amount of $131,055.13. See Techniarts Video, Inc. v. 1631 Kalorama Assocs., 572 A.2d 1051 (D.C. 1990). The Moores, on behalf of Techniarts, executed on the judgment and received a Marshal's Deed for the property at 1631 Kalorama Road on September 30, 1992. On December 10, 1992, the Moores obtained a Superior Court order substituting Technical Land as the owner of the property. *fn3 The revised Marshal's Deed to Technical Land was dated January 7, 1993.
On April 1, 1993, a creditor of 1631 Kalorama Road Associates filed an action in the Superior Court against, inter alia, Technical Land, questioning the validity of the January 7, 1993 Marshal's Deed. After Technical Land filed for bankruptcy, the creditor's action was transferred to the United States Bankruptcy Court for the District of Columbia. *fn4 On February 25, 1994, while the litigation contesting the validity of the Marshal's Deed to Technical Land was pending, TVII negotiated a Use Agreement with the Trustee for the Bankruptcy Estate of 1631 Kalorama Associates.
The Use Agreement, approved by the Bankruptcy Court on March 16, 1994, recognized that the right to ownership and possession of the premises was in dispute, but wished "to maximize the value of the property." Until the ownership dispute was resolved, the premise was to be "operated as a motion picture and television production facility." It gave the Trustee exclusive control over the property, including authority to sell the building, but gave TVII the right to use all of the space in the building. In exchange, TVII was responsible for maintenance, payment of utilities and operating expenses. With respect to insurance, the Use Agreement provided:
The Trustee has in place liability and property and casualty insurance at this time. TVII shall in addition maintain its own liability insurance with the estate as loss payee in an amount of not less than $1,000,000 and shall be responsible for insurance of all its own equipment.
The Parties will cooperate in attempting to obtain building insurance that is less expensive in light of the occupancy status of the building.
In June 1994, the Bankruptcy Court declared the Marshal's Deed to Technical Land invalid, *fn5 but Technical Land, with the permission of TVII under the Use Agreement, continued to occupy the building until August 1995, when Technical Land vacated the premises upon expiration of the Use Agreement between the Trustee and TVII.
On December 10, 1993, the same day Technical Land had obtained the Superior Court order assigning the Marshal's Deed from TVII to Technical Land, and some six months before the deed was invalidated by the Bankruptcy Court, Technical Land acquired property insurance on the property at 1631 Kalorama Road from appellee, Firemen's Insurance, pursuant to an order of the Bankruptcy Court. *fn6 The policy covered property damage up to $335,000 per incident, less the amount subject to the co-insurance provision of the policy. It did not cover damage to equipment or loss of business income. Technical Land was the only insured named in the policy.
Technical Land moved into 1631 Kalorama Road on February 28, 1994, *fn7 and immediately discovered significant water damage. *fn8 The Moores promptly contacted Firemen's Insurance to file a claim. On March 6, 1994, William Moore met with Gerald Kaplan, the adjuster assigned to Technical Land's damage claim, at the property. Following this meeting, the Moores conducted emergency repairs to the building at a cost of $125,515.94, which they borrowed from their Techniarts partnership. *fn9 A second loss occurred on June 20, 1994, when a water valve in the heating and air conditioning system burst, damaging the areas that had just been repaired. After receiving notice of the second loss, Firemen's Insurance canceled the policy on July 5, 1994, and returned the premium to Technical Land.
Technical Land's claim for the first loss was denied on June 28, 1994. The letter of denial stated that Technical Land lacked an insurable interest in the property, and that Moore had failed to mention that the prior owner and Trustee for the Bankruptcy Estate of 1631 Kalorama Associates had a policy with Aetna Insurance providing coverage for the building.
Technical Land sued Firemen's Insurance for breach of the contract of insurance and failure to timely pay its claims after Firemen's Insurance refused to indemnify Technical Land for water damage to the building located at 1631 Kalorama Road. Following a two-day bench trial, the trial court ruled in favor of Firemen's Insurance after concluding, inter alia, that Technical Land did not have an insurable interest in the property. *fn10 Technical Land appeals from this judgment, arguing that the trial court erred in the factors it considered in deciding that Technical Land did not have an insurable interest in the property. We note that Technical Land belatedly made the precise argument upon which we rule, and, therefore, the trial court did not make the relevant findings of fact and conclusions of law. Nonetheless, Technical Land sufficiently presented to the trial court a factual basis for its claim that it had an insurable interest. Thus, we reverse and remand for trial court consideration of the applicable factors we set out in this opinion.
When the trial court sits as fact-finder, its factual findings are accorded considerable deference and are reviewed under a "clearly erroneous" standard. See Davis v. United States, 564 A.2d 31, 33 (D.C. 1989) (en banc); see also D.C. Code § 17-305 (a) (1997 Repl.) (a judgment may not be set aside unless it appears "plainly wrong or without evidence to support it"). Where the matter under review is a question of law, however, this court exercises de novo review. See United States v. Felder, 548 A.2d 57, 61 (D.C. 1988). Whether a person has an insurable interest is a question of fact. See Anderson v. State Farm Fire & Cas. Co., 397 N.W.2d 416, 417 (Minn. Ct. App. 1986). Although Firemen's Insurance contends that Technical Land is seeking review of the trial court's finding of fact that Technical Land did not have an insurable interest, Technical Land maintains that the trial court's finding that it had no insurable interest in the property is wrong as a matter of law because the trial court did not consider the appropriate factors. We agree with Technical Land and review the trial court's ruling de novo. See Felder, 548 A.2d at 61-62.
Technical Land's principal argument on appeal is that the trial court incorrectly considered that an insurable interest in the property could be based only on Technical Land's judgment lien or the Marshal's Deed that was eventually invalidated. To support this contention, appellant details case law from other jurisdictions that an insurable interest in property is determined not only by legal or equitable title, but also by an insured's economic interest in the property measured by the potential for pecuniary benefit or loss that may result from the use of or damage to that property. See, e.g., Hawkeye-Security Ins. v. Reeg, 470 N.E.2d 1103, 1105 (Ill. App. Ct. 1984); Miller v. New Jersey Ins. Underwriting Ass'n, 414 A.2d 1322, 1325 (N.J. 1980). We do not read the trial court's ruling as narrowly as appellant suggests. *fn11 Rather, the trial court reasoned that because Technical Land could show no economic interest in the property itself, the only insurable interest it might have would be through its judgment lien or Marshal's Deed. *fn12 However, because the Marshal's Deed was declared invalid by the Bankruptcy Court, the trial court concluded that Technical Land was left without an insurable interest . The question before this court - one of first impression - is whether Technical Land had an insurable interest in the property other than through legal or equitable title. *fn13
A. Insurable interest.
Before exploring the limits of an insurable interest, we review a few basic principles. It has been noted that in most states it is "axiomatic" that a valid insurance contract must be based on an insurable interest. See Lumbermens Mutual Ins. Co. v. Edmister, 412 F.2d 351, 353 (8th Cir. 1969); see also Metropolitan Police Retiring Ass'n v. Tobriner, 113 U.S. App. D.C. 168, 170, 306 F.2d 775, 777 (1962) (describing insurance as "contractual security" against loss through "destruction or impairment of an insurable interest"). *fn14 Some jurisdictions require that the insurable interest exist at the time the contract of insurance is executed, see Wilbanks & Wilbanks, Inc. v. Cobb, 601 S.W.2d 601, 603 (Ark. Ct. App. 1980), some jurisdictions require that the insurable interest exist at the time of loss, see Universal C.I.T. Corp. v. Foundation Reserve Ins. Co., 450 P.2d 194, 195 (N.M. 1969), and a number of other jurisdictions require that an insurable interest must exist both when the contract is created and at the time of loss, see Providence Washington Ins. Co. v. Stanley, 403 F.2d 844, 848 (5th Cir. 1968); G.M. Battery & Boat Co. v. L.K.N. Corp., 747 S.W.2d 624, 626 (Mo. 1988). See generally 3 Lee F. Russ & Thomas F. Segalla, Couch on Insurance § 41:15 (3d ed. 1995) (explaining that jurisdictions differ on whether an insurable interest must exist at the time of contract formation, at the time of loss or at both contract formation and loss). *fn15 Property insurance is a contract of indemnity, not a wagering contract, and one without an insurable interest in property incurs no redeemable loss by its destruction. See Hilltop Bowl Inc. v. United States Fidelity & Guar. Co., 259 F. Supp. 649, 652 (W.D. La. 1966). A policy reason for defining with concreteness the basis for an insurable interest is that the insurable interest rule exists, at least in part, to discourage illicit uses of insurance. See Miller, 414 A.2d at 1324.
It is well settled that an insurable interest in property is "not necessarily synonymous with absolute property rights." Anderson, 397 N.W.2d at 418. See also Reeg, 470 N.E.2d at 1105 (explaining that an insurable interest is "not necessarily equated with clear title"); Miller, 414 A.2d at 1325 (noting that an insurable interest "need not rise to the level of legal or equitable title"); Edmister, 412 F.2d at 353 (explaining that an insurable interest need not be "a fee simple holding or an absolute ownership of property"); 43 Am. Jur. 2d Insurance § 943 (1999) (stating that "an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest"). In general, an insurable interest exists when a party has "such a relation or concern with the subject matter insured that [the party] will derive pecuniary benefit or advantage from its preservation or suffer pecuniary loss or damage from its destruction." Edmister, 412 F.2d at 353; see also G.M. Battery & Boat Co., 747 S.W.2d at 626; Anderson, 397 N.W.2d at 417; Reeg, 470 N.E.2d at 1105; 43 Am. Jur. 2d Insurance § 943 (1998) (citing cases); Russ & Segalla, supra, § 41:11. It is essential, however, that there be a nexus between the loss to the insured and the damage to the insured property for the interest to be insurable. See Edmister, 412 F.2d at 354. Thus, a party has no insurable interest unless "by the destruction of the property, [the party] will suffer a loss, whether [the party] has or has not any title to, lien upon, or possession of the property itself." Anderson, 397 N.W.2d at 417 (internal quotations and citation omitted); see also Glens Falls Ins. Co. v. Sterling, 148 A.2d 453, 456 (Md. 1959) (without proof of actual pecuniary loss, insured is not entitled to indemnification under fire insurance policy). The burden of establishing the existence of an insurable interest rests on the insured. See Northern Ins. Co. v. Fischer, 103 A.2d 581, 583 (D.C. 1954); see also 44 Am. Jur. 2d Insurance § 1927 (1982).
B. Technical Land's interest in the property.
Applying these principles, in order to establish that it had an insurable interest (other than through property rights), Technical Land must show that it suffered a direct pecuniary loss from the water damage to the insured property, the building itself. As the trial court noted, the Trustee for the Estate of 1631 Kalorama Associates had control of the property and the right to sell it. Thus, the Trustee had the most commonly-recognized insurable interest because it suffered a direct financial loss after water damaged the building, thereby decreasing its value. The Use Agreement gave TVII the right to use the property and to contract with studio users; Technical Land was not a party to the agreement. *fn16
It is undisputed that TVII, and through TVII, Technical Land, held use of the property rent-free under the Use Agreement. At most, Technical Land had a "mere license to occupy" the building by virtue of its association with TVII. Although Technical Land benefitted from the Use Agreement because it was able to use the building at 1631 Kalorama Road, occupancy alone is insufficient to establish an insurable interest. See Boston Ins. Co. v. Beckett, 419 P.2d 475, 479 (Idaho 1966); see also Edmister, 412 F.2d at 354 (status as tenants and fact that insured dwelling was used as business headquarters insufficient to constitute an insurable interest); Anderson, 397 N.W.2d at 418 (insured who stored personal property rent free in garage owned by ex-wife had no insurable interest because he had no risk of direct pecuniary loss through damage or destruction of the garage itself); *fn17 cf. CLS Mortgage, Inc. v. Bruno, 937 P.2d 1106, 1108-09 (Wash. Ct. App. 1997) (under Washington statute defining "insurable interest" as "any lawful and substantial economic interest in the safety or preservation" of the insured property, neither occupancy nor two percent ownership of property owner's assets, without specific ownership in the property, satisfies insurable interest requirement); Miller, 414 A.2d at 1326 (former owners had insurable interest based on their continued possession even after foreclosure for failure to pay taxes).
Expenditures to repair the water damage to the building could constitute an insurable interest. See Bohn v. Lousiana Farm Bureau Mut. Ins. Co., 482 So. 2d 843, 853 (La. Ct. App. 1986). Technical Land did not make the emergency repairs, however; they were made by TVII. Pursuant to the Use Agreement, it was TVII, not Technical Land, that was responsible for "ordinary maintenance" and, at TVII's option, "to advance up to $100,000.00 for repairs and maintenance of the building."
At trial, Technical Land maintained that even though the Marshal's Deed was invalidated, it still had an economic interest in the property in the form of a judgment lien. However, it was Techniarts that sued 1631 Kalorama Road Associates to obtain a judgment lien. Moreover, it was only after Techniarts executed the lien and obtained the Marshal's Deed that the Moores substituted Technical Land as the owner of the property. On these facts, it would be Techniarts, not Technical Land, that had an outstanding judgment lien on the property. *fn18
Technical Land also contends that because it paid taxes on the property, it therefore had an insurable interest. See Miller, 414 A.2d at 1325 (parties who possessed property, collected rents and paid taxes on the property had an insurable interest). The record, however, shows only that Technical Land was billed for property taxes after obtaining the Marshal's Deed, not that it actually paid the taxes. As the Marshal's Deed was voided ab initio, it would follow that the obligation to pay taxes based on that deed would be set aside. Thus, the above factors, singly or in conjunction, do not support Technical Land's having an insurable interest in the building. *fn19
Technical Land cites Asmaro v. Jefferson Ins. Co., 574 N.E.2d 1118 (Ohio Ct. App. 1980) (per curiam), in support of its claim that these factors do not preclude it from establishing that it had an insurable interest in the property. In Asmaro, the Ohio Court of Appeals addressed whether Asmaro, Inc., which owned a business operated in a building destroyed by fire, had an insurable interest in the building. See id. at 1120. The court held that Alaa Asmaro, the owner of the building and the sole stockholder of Asmaro, Inc., although he had an insurable interest, could not recover because he was not the named insured on the policy. Asmaro, Inc., the named insured, was held to have an insurable interest, even though it did not have a property interest, on the basis of its economic relationship to the property. See id. at 1121. The court concluded that Asmaro, Inc., had an insurable interest in the building because its business was a neighborhood grocery store, dependent on walk-in customers, that would suffer a loss if it were forced to relocate by damage to the building. See id. Thus, the court found an insurable interest based on the fact that the location of the building was integral to the success of the business.
We agree with the Asmaro court's reasoning that where economic loss to a tenant is closely tied to the unique traits of a particular property, it can form the basis for an insurable interest. In this case, Technical Land argues that its insurable interest derives from the fact it was created to operate the studio housed in the insured property and derive profits therefrom, and that it could not do so as a result of the water damage to the building. *fn20 There was evidence presented to the trial court that the studio at 1631 Kalorama Road was unique to the Washington metropolitan area, and that Technical Land suffered economic loss due to its inability to relocate to another site with similar facilities in time to perform its contractual obligations. The matter is complicated, however, by the fact that appellant did not make the Asmaro argument to the trial court. Indeed, Technical Land did not make this precise argument in its brief on appeal, but raised it for the first time at oral argument. *fn21 Although claims not raised in the trial court will not ordinarily be considered on appeal, see D.D. v. M.T., 550 A.2d 37, 48 (D.C. 1988) (citing Miller v. Avirom, 127 U.S. App. D.C. 367, 369-70, 384 F.2d 319, 321-22 (1967)), we distinguish between claims and arguments in support of a claim, see Mills v. Cooter, 647 A.2d 1118, 1123 n.12 (D.C. 1994) (noting that parties are not limited to precise arguments made in the trial court). Here, Technical Land did claim before the trial court that it had an insurable interest and argued that it had a "reasonable expectation, based upon a real or legal right, of benefit to be derived from the continued existence of the property and of loss or liability from its destruction." Anderson, 397 N.W. 2d at 418 (quoting Ben-Hur Mfg. Co. v. Firemen's Ins. Co., 118 N.W.2d 159, 161-62 (Wis. 1962)). We are therefore satisfied that the point has been adequately preserved for appellate review.
As the trial court noted, "there is no question that Technical Land lost income because of its inability to use the property during the time it was damaged." Although we cannot say the trial court erred in not making factual findings concerning the alleged uniqueness of the property in question to Technical Land's business and in finding that Technical Land had no insurable interest in 1631 Kalorama Road based on the precise arguments made to it, we remand the case for the trial court's consideration of the facts in light of the claimed uniqueness of the property and the relationship between Technical Land's loss and the property's unique traits. *fn22
Accordingly, the judgment in favor of Firemen's Insurance is Reversed and remanded.