Insurance Helpline | Claim denied for lack of ‘insurable interest’
QUESTION: I bought an International Tractor Head in the US and sent it to a relative in Jamaica over 17 years ago. It has been registered in the relative's name since it landed. The vehicle, which has been insured with the same company over the years, was recently involved in its first accident. It hit another vehicle. The insurance company has refused to pay. They say my relative breached contract because he is not the owner. He should settle with the third party. What can my relative do to get them to pay? I have never heard anything like this before. Have you?
-D.P., Connecticut, New Jersey
INSURANCE HELPLINE: The information you sent at first was insufficient for me to form an opinion and answer your first question. I therefore asked you to send scanned copies of the following documents for the vehicle: certificate of title; registration certificate; certificate of fitness; and certificate of insurance. I also requested a copy of the insurer's denial of liability letter. They were sent directly to me a few days later.
The papers looked genuine. The name on the certificate of insurance matched the name on the other papers. The insurer's letter said the "investigation revealed that you have no insurable interest in the vehicle as the vehicle is owned by your brother (in the US, you) and as such you have breach (sic) a condition of your policy. We will be directing the third party to deal directly with you regarding the settlement of their claim".
Things looked very fishy. What did the insurer know that I did not? Were the documents sent to me forgeries?
Because of the unease that I felt, I wrote to you as follows: "I received the information that your family member sent me today. The insurers appear to be suggesting that the certificate of title and the other papers for the truck are bogus and that the vehicle is owned by someone other than the person named in the documents. Is this true? Why did you contact me? What reasons would the insurers have for believing so? If I were to make a check with the authorities, what would I find?"
You and I had a long talk by phone. My doubts disappeared. The truck was a gift. It was meant to provide financial support to family members in Jamaica. You bought the vehicle, shipped it, transferred ownership to a family member and bore all the major expenses until it started to generate income. After the operating expenses of the vehicle were paid, the surplus went to family members. The arrangement seemed quite reasonable, above board, and more important, did not support the insurer's 'no insurable interest' argument.
I contacted a senior insurance company official. I learnt that:
1. The family member in whose name the vehicle was registered/insured has reportedly declared that he has absolutely no interest in the vehicle, even though his name still appears on the documents.
2. Another family member's name should be substituted for the family member whose name now appears on the official documents.
3. The information in items 1 and 2 was unearthed by the insurance company's investigator.
4. The reason that was stated in the insurer's letter dated August 21, 2015 for refusing to pay the third party's claim the absence of insurable interest was wrong. This was not a proper reason for the company's refusal to pay the third party's claim.
5. The person who was driving the tractor head when the accident occurred was a 20-year-old and had four months' driving experience.
6. The policy requires that persons driving the insured vehicle should be driving for at least three years.
7. Even though the insurer provided a reason for not paying the third party's claim which has turned out to be incorrect, the company does not now intend to settle the third party's claim. This is because the driver of the tractor head at the time of the accident did not meet the minimum driving experience stated in the contract.
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When I asked the official to be lenient, given the length of time your family was associated with the company, plus the fact that no previous claims were made, the request fell on deaf ears. It was suggested that the family member who gave custody of the vehicle to a 20-year old was irresponsible.
On the other hand, I am not sure that having given a wrong reason for not paying a claim, the company has the legal right four months' later to withdraw that reason and offer a different one now. Perhaps you should seek legal advice.
Today's article is connected directly to last week's. One of the takeaways from last week's was that driving involved much more than controlling the vehicle by way of the steering wheel, accelerator, brakes, the clutch where applicable, and the gears. Other things came into play. This is not simply an insurance matter. May I suggest that you urge your family members to use the experience of this unfortunate collision to get up to speed in order to ensure that this asset is properly managed in the future.
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: email@example.com