In Ram Krishana Inc. d/b/a Motel 6 Sulphur v. Mt. Hawley Insurance Co. (2025 WL 371016) (S.D.N.Y. 2025)), the United States District Court for the Southern District of New York determined that the plaintiff lacked an insurable interest in property it insured because it did not own or possess the property or suffer economic loss due to the property’s destruction. Consequently, the plaintiff was not entitled to indemnity for damage to the property it purported to insure under a commercial property insurance policy.[1]
Background
The plaintiff, a business that operated as a hotel, purchased insurance from the defendant intending to cover loss or damage to both its hotel and an adjoining restaurant property. The restaurant property was owned by another company, which was a separate entity with common ownership by the same individuals who owned the business.
During the policy term, the business claimed that the properties suffered damage caused by a hurricane and submitted a claim to the insurer. Litigation ensued regarding that claim.
Analysis
On a motion for summary judgment, the Court agreed with the insurer’s argument that the business was not entitled to recover for damage to the restaurant property because the business lacked an insurable interest. As a general principle, under New York law, an entity must have an insurable interest in property it insures. An entity has an insurable interest:
whenever [it] would profit or gain some advantage from the property’s continued existence or suffer some loss or disadvantage by its destruction, but [t]he interest must be of such a character that the destruction of the property will have a direct, and not a mere remote or consequential, effect on it…[M]ere possession or license to use the property is insufficient to support an insurable interest where the insured would experience no direct economic loss by its destruction.
The Court’s decision was supported by the following factors:
- Ownership and possession: insurable interest required the business to have a direct economic interest in the property. Because the business did not own or possess the restaurant property, it lacked an insurable interest. The common ownership between the business and the adjoining restaurant was insufficient to establish an insurable interest.
- Economic impact: insurable interest is defined by the potential for economic loss or gain from the property’s continued existence or destruction. The Court emphasized that mere possession or the ability to use the property did not constitute an insurable interest unless the business would suffer a direct economic loss from its destruction. Here, the business did not demonstrate any direct economic impact from the restaurant property’s damage.
- Estoppel argument: the business argued that the insurer should be estopped from denying coverage because it agreed to insure the restaurant property and could have investigated insurable interest before issuing the policy. The Court rejected this argument, stating that insurers are not obliged to investigate the title to the insured’s property and are entitled to rely on the representations made in the policy application.
Conclusion
The ruling in Ram Krishana serves as a critical reminder that policyholders must have a valid insurable interest in properties they seek to insure. Understanding the basics of what constitutes insurable interest is essential in evaluating available insurance coverage. Without it, coverage could be precluded in the event of loss or damage.
[1] This article only focuses on the Court’s decision relative to insurable interest.