Insurable Interest Upon Divorce
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Attention: the information on this page pertains to the following case analysis: In re Marriage of Day, 31 Kan. App. 2d 746, 74 P.3d 46 (2003). It is recommended to read this case analysis for a full understanding.
The husband appealed, arguing that the trial court erred by dividing the proceeds. The husbandís first argument was based upon the law of insurance. Under that law, the beneficiary of the policy must have an insurance interest in the life of the insured. In other words, the beneficiary must suffer some loss upon the insuredís death. When the beneficiary suffers such a loss, the proceeds of the policy are not a net profit to the beneficiary; rather, they offset some or all of the loss which the beneficiary would otherwise suffer. Where the beneficiary lacks an insurable interest that is, if there is no loss, so that the beneficiary would stand to receive a net profit upon the death of the insured then life insurance has traditionally been against public policy, for potential profit creates an unwholesome incentive for the beneficiary to act wrongly toward the insured. "[I]nsurance in favor of one who has no interest in the life of the insured, who would be interested in his early death, is contrary to good morals and a sound public policy." Metropolitan Life Insurance Co. v. Elison, 72 Kan. 199, 203, 83 P. 410, 411-12 (1905).
The husband argued that the effect of the trial courtís decision was to make the wife a beneficiary of the policy, when she lacked an insurance interest in the life of the husbandís mother. The appellate court agreed that "the Elison opinion states strong reasons to negate the trial courtís rulings." 31 Kan. App. 2d at 752, 74 P.3d at 51. Clearly, however, the wife did have an insurable interest in the husbandís mother during the marriage, as the motherís death would harm the husband and the business, and would therefore indirectly harm the wife. The court noted that insurance decisions from other states are divided as to whether an insurable interest must exist at all points after the policy is acquired, but found law from the Kansas Supreme Court stating that an insurable interest must exist only when the policy is acquired. Sinclair Refining Co. v. Long, 139 Kan. 632, 32 P.2d 464 (1934). The court therefore held that the disappearance of the wifeís insurable interest after the divorce was not alone a sufficient reason to reverse the trial courtís decision.
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