Gossett v. Farmers Ins. Co. of Washington
948 P.2d 1264 (1997)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An insurable interest requires a lawful and substantial economic interest in the property's preservation, not a mere expectancy of future ownership. Without a binding contractual right or obligation to purchase a property, an individual's insurable interest is limited to their actual pecuniary loss, such as the value of improvements they made.
Facts:
- In 1990, Richard and Margaret Gossett entered an earnest money agreement to purchase an unfinished house from Mr. Gunns, intending to complete it and sell it for a profit.
- Unable to secure conventional financing, the Gossetts used a broker, Trusty Deed Services, which obtained temporary financing from an investor, Ms. Crennell.
- The Gossetts obtained a homeowners insurance policy from Farmers Insurance after representing to the agent that they would be the legal owners of the property.
- On August 30, 1990, the Gossetts assigned their entire interest in the purchase and sale agreement to Trusty Deed.
- When the sale closed on September 5, 1990, legal title to the property was placed in Trusty Deed's name. No written agreement existed obligating the Gossetts to repay the purchase loan or giving them a right to purchase the property from Trusty Deed.
- The Gossetts began making improvements to the house and stored personal belongings on the premises.
- On November 18, 1990, the house was destroyed in a fire accidentally started by Mr. Gossett.
- At the time of the fire, the Gossetts had not yet secured the long-term financing necessary to purchase the property from Trusty Deed.
Procedural Posture:
- The Gossetts filed a claim with Farmers, which paid for personal property loss but denied full coverage for the house itself.
- The Gossetts sued Farmers in trial court, seeking benefits for damage to the house.
- Both parties moved for summary judgment on the issue of insurable interest.
- The trial court granted partial summary judgment for the Gossetts, ruling their insurable interest was limited to the value of the improvements they had made.
- Following the ruling, the parties settled all other claims, with the Gossetts reserving the right to appeal the insurable interest issue. The trial court awarded attorney fees to the Gossetts.
- Farmers appealed the award of attorney fees to the Court of Appeals, and the Gossetts cross-appealed the trial court's ruling limiting their insurable interest.
- The Court of Appeals affirmed the attorney fees award but reversed the insurable interest ruling, holding that a genuine issue of material fact remained as to the extent of the Gossetts' interest.
- Farmers filed a petition for discretionary review with the Supreme Court of Washington.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an individual who has made improvements to a property, but does not hold legal title and has no binding contractual right or obligation to acquire it, have a 'lawful and substantial economic interest' sufficient to create an insurable interest in the full value of that property?
Opinions:
Majority - Madsen, J.
No. A mere expectation of future ownership, without a binding obligation or established right to purchase, does not constitute a lawful and substantial economic interest sufficient to create an insurable interest in the property's full value. The Gossetts assigned all their interest in the purchase agreement to Trusty Deed and held no legal title or documented debt obligation related to the property. Their hopes of obtaining financing and eventually acquiring the house were inchoate expectations, insufficient to create an interest beyond the value of the improvements they made. The principle of indemnity in insurance law prohibits an insured from receiving a windfall, limiting recovery to the extent of their actual, demonstrable pecuniary loss.
Concurring - Talmadge, J.
I concur with the majority's resolution that the Gossetts lacked an insurable interest in the full value of the property. However, the majority should not have engaged in a constitutional analysis of the court's own common law rule regarding attorney fees. The court's decisions in Olympic S.S. and McGreevy established an equitable exception to the American rule on attorney fees, and the court should simply adhere to that precedent without undertaking an unnecessary and potentially problematic constitutional review of its own equitable powers.
Analysis:
This case significantly clarifies the scope of 'insurable interest' under Washington law, reinforcing the principle of indemnity and drawing a firm line between a substantial economic interest and a mere speculative expectancy. By requiring clear and convincing evidence to treat a deed as a mortgage, the court heightens the burden on claimants who lack legal title. This decision effectively requires individuals in similar situations to have a formal, documented financial obligation or contractual right to the property to insure its full value, thereby preventing insurance policies from being used as instruments of potential profit rather than indemnification for actual loss.
