Property Insurance
Property Insurance Is a Personal Indemnity Contract
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Property insurance does not insure property. It insures people who have an interest in real or personal property and who face the risk of losing that property to unknown or contingent perils. Most property insurance policies insure against all direct risks of physical loss not excluded or the risk of loss by perils named in the policy like fire, lightning, windstorms, or hail. The risk of loss is spread among the customers of the insurer so that the cost of insurance is affordable. It is called “first party” insurance against risks faced by property in which the insured (the first party to the contract of insurance) has an interest and by the loss of which the insured would be damaged. The insurer, considering ancient ways to describe parties to contracts, is considered the second party to the contract.
CONTRACT OF PERSONAL INDEMNITY
First party property insurance is a contract of personal indemnity. The insurer promises to indemnify the first party, the insured, in the event the insured incurs a loss as a result of one of the perils insured against by the wording of the policy. Insurance does not follow title to the land. The insurer makes a promise to the first party, the insured, that if there is a loss to property in which the insured has an interest, to pay indemnity for the loss.
The property is not insured against destruction. The insured is guaranteed against loss, to the extent of his insurable interest, not exceeding the amount stated in the policy’s declarations page as the limit of liability promised by the insurer.
INSURABLE INTEREST
It may be said, generally, that any one has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. An insurable interest in property is any right, benefit or advantage arising out of or dependent thereon, or any liability in respect thereof, or any relation to or concern therein of such a nature that it might be so affected by the contemplated peril as to directly damnify the insured.
To have an insurable interest, the insured must derive “a direct, pecuniary loss” from the subject matter of the contract; the loss cannot be indirect or sentimental.” [A.B. Petro Mart, Inc., 892 N.W.2d at 465; see also 14 Mich. Civ. Jur. Insurance § 135] An insurable interest in an insurance policy is determined not by the label attached to the insured’s property but by whether the insured will suffer a pecuniary loss due to the destruction of the property. [Sam D Mkt. 1 v. Selective Ins. Co. of S.C. (E.D. Mich. 2021)]