Teague-Strebeck Motors Inc. v. Chrysler Insurance Co.3/8/1999
ossession of the property itself." Fulwiler, 59 N.M. at 373, 285 P.2d at 144 (quoting Harrison v. Fortlage, 161 U.S. 57, 65 (1896)); accord Universal CIT Corp. v. Foundation Reserve Ins. Co., 79 N.M. 785, 786, 450 P.2d 194, 195 (1969); Suggs, 833 F.2d at 887.
As we understand this test, New Mexico has joined the majority of jurisdictions and the leading commentators in adopting the factual-expectations approach. See Jerry, supra, § 42, at 249; Keeton & Widiss, supra, § 3.4(a)(5), at 168-72; Bertram Harnett and John V. Thornton, Insurable Interest in Property: A Socio-Economic Reevaluation of a Legal Concept, 48 Colum. L. Rev. 1162, 1185 (1948) (Harnett & Thornton). A strictly legal right-either a property or a contract right-is not necessary so long as the risk of loss to the insured is clear. We believe that the test adopted by our Supreme Court in Fulwiler is essentially the same as two other formulations that may convey the concept more clearly. One commentator has suggested that an "insurable interest exists if the insured, independently of the policy of insurance, will gain economic advantage from the continued existence of the insured property, or will suffer economic disadvantage on damage to the property." Harnett & Thornton, supra, at 1185. A New Jersey court has written, "The test of insurable interest in property is whether insured has such a right, title or interest therein, or relation thereto, that he will be benefitted by its preservation and continued existence or suffer a direct pecuniary loss from its destruction or injury by the peril insured against." Hyman v. Sun Ins. Co., 175 A.2d 247, 249 (N.J. Super. Ct. App. Div. 1961) (quoting Farmers Mut. Fire Ins. Co. v. Pollock, 184 S.E. 383, 386 (Ga. Ct. App. 1936)) (internal quotation marks and emphasis omitted).
{33} We now turn to the application of these propositions to the case before us. First, however, we emphasize that application of the insurable-interest doctrine does not require any determination of evil motives or misconduct of any kind by the insured. Perhaps the law could deal with moral hazard simply by denying coverage in excess of the insurable interest only upon proof that the insured was in some way culpable in the destruction or damage to the property. But that is not the law. The refusal to consider actual culpability can be justified on the grounds that investigation and proof of culpability would not be a productive use of resources and, perhaps more importantly, there is no unfairness in not paying more than the insured has lost. (Excess premiums paid for the policy could be refunded. See generally Keeton & Widiss, supra, § 3.3(d).) Also, the policy against gambling is a concern even in the absence of moral hazard. Thus, we emphasize that application of the insurable-interest doctrine to refuse or reduce a claim should in no way be taken as a reflection on the character of the insured. In particular, there is not even a hint in the record before us of any misconduct by the insured.
{34} At first glance there may appear to be a gross violation of the insurable-interest doctrine in this case. Mills-Strebeck was to pay only $50,000 for the property that was destroyed by the fire. But the recovery under the insurance policy for the actual cash value of the property was more than $300,000. (For convenience, we will use $300,000 as the amount of the recovery.) Mills-Strebeck would certainly experience a substantial gain by collecting $300,000 in insurance money on a $50,000 investment.
{35} That impression, however, does not withstand analysis. The financial benefit to Mills-Strebeck-obtaining $300,000 on a $50,000 "investment"-would not be the result of the fire an
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