Certain Underwriters at Lloyd’s London v. Smith, 77 S.W.3d 859 (Tex. App.—Houston [14th Dist.] 2002, no pet.).
Convenience Store purchased a life insurance policy on the life of
Employee payable to Convenience Store should Employee be killed on the
job. After Employee was killed in the course and scope of his
employment, Insurer paid Convenience Store the proceeds of the policy.
Employee’s Wife sued Insurer and Convenience Store. The trial court
awarded Wife the proceeds along with attorney’s fees and prejudgment
interest.
The appellate court began its analysis by examining whether Convenience
Store had an insurable interest in Employee’s life. The court held that
Convenience Store had no insurable interest. The court recognized that
an employer may have an insurable interest in an employee’s life but
that this relationship by itself is insufficient. Convenience Store
would not suffer a great loss by reason of Employee’s death. The
unstated basis was likely to be that Employee was a mere clerk and a
replacement could be hired almost immediately. The court discussed other
cases which indicate that arrangements like this are actually wagering
contracts on the lives of the insureds. Accordingly, Convenience Store
holds the proceeds in trust for Wife.
The court also determined that the award of attorneys’ fees against
Convenience Store was proper, that the trial court needs to recalculate
prejudgment interest, and that Insurer was not liable to Wife because
Insurer paid the insurance proceeds to Convenience Store without notice
of Wife’s adverse claim.
Moral: An employer must be certain to have an insurable interest in an
employee’s life before purchasing a life insurance policy on the
employee’s life.