Question from a BINY member: “We had an insured who called yesterday to add her boyfriend/domestic partner to her homeowners policy as a named insured. My first reaction was that cannot be done as the boyfriend has no financial interest in the home which I explained. They pushed the issue and kept telling me it could be done (per another agent). I called our company underwriter who advised – you can add a domestic partner as a named insured to a homeowners policy. How is this okay if the second named insured has zero financial interest in the home and is not on the deed? We are dumbfounded over here!”
Answer: Interesting question, and the answer lies in the fact that a Homeowners policy does not provide property insurance only. It also provides liability insurance.
It is true that a property insurance policy is enforceable in New York only to the extent of the claimant’s insurable interest in the property. This is explicitly stated in New York Insurance Law Section 3401:
“No contract or policy of insurance on property made or issued in this state, or made or issued upon any property in this state, shall be enforceable except for the benefit of some person having an insurable interest in the property insured. In this article, “insurable interest” shall include any lawful and substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary damage.”
It seems pretty clear that only the person who stands to lose money if the property is damaged or destroyed can collect under the Property Coverage section of a Homeowners policy. However, liability coverage for injuries or damages suffered by a third party are a different matter. I found a New York trial court case decided in July 2020 that went into detail on this:
“An insurance policy covering loss or damage to property is enforceable only when issued to a person who has an insurable interest in the insured property (see Insurance Law § 3401). However, as relevant here, the requirement that the insured have an insurable interest is applicable only to first-party casualty insurance, it is not applicable to third-party liability insurance (see Insurance Law § 3401; Charnowitz v GEICO, 177 AD2d 320, 321 [1991]).
The reason for this distinction is apparent from the rationale for the insurable interest requirement. “It has long been the rule that, in order to prevent fraud and crime and to prohibit wagering contracts on property in which the insured possesses no interest, the lack of an insurable interest in the property insured renders the property insurance void and unenforceable” (Etterle v Excelsior Ins. Co. of NY, 74 AD2d 436, 438 [1980], citing Scarola v Insurance Co. of N. Am., 31 NY2d 411, 413 [1972] [other citation omitted]). These concerns are not implicated by third-party liability insurance because payments for a covered loss are made to an injured third-party, thus, there is no possibility of an insured loss impermissibly enriching an insured. Further, there is a sound rationale for permitting a person who has no economic interest in a property to be added as a named insured on the owner’s policy to insure against the risk of liability to third parties that he or she may be exposed to as an occupant sharing possession of the property with the owner’s permission and, further, to provide for a defense against such claims. It is presumably for this reason that Travelers allows domestic partners to be added to homeowners’ policies as named insureds.”
Interestingly, in this case the injured person was trying to argue that she was not an insured because she didn’t own the house, even though her name was on the dec page. If she wasn’t an insured, she could collect for the injuries she suffered when her SO’s dog, who was tied up, chased a cat and tripped her. The court was unpersuaded by this reasoning.
Therefore, as recently as four years ago a New York court, citing precedents, upheld the practice of issuing Homeowners insurance policies to unmarried domestic partners even where the deed to the home is in the name of only one partner. They justified it based on the Personal Liability Coverage in the policy, not the Property Coverage. That’s why your company underwriter was willing and able to add your client’s boyfriend as a named insured.