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Teague-Strebeck Motors Inc. v. Chrysler Insurance Co.3/8/1999
d the subsequent insurance recovery. Rather, it would be the result of Mills-Strebeck's advantageous contract with Tucumcari Chevrolet-Geo. If the contract had been consummated, with the dealership property coming to Mills-Strebeck, then Mills-Strebeck would have owned the property worth $300,000 in return for the $50,000 purchase price. In other words, Mills-Strebeck would have achieved the same $250,000 gain in the absence of the fire and without any insurance coverage.
{36} Thus, Mills-Strebeck apparently had a substantial financial interest in the dealership property that was destroyed by the fire. In the absence of insurance coverage, the fire would have prevented Mills- Strebeck from gaining the advantage of the deal made with Tucumcari Chevrolet-Geo. Assuming an enforceable contract for acquisition of the dealership property, there is no moral hazard here. Mills-Strebeck would have no incentive to destroy the dealership property or to be lax in caring for it. Nor would acquiring the insurance coverage be akin to placing a bet.
{37} But what about the fact that the Purchase Agreement was not effective without approval by the bankruptcy court? In our view this fact is not decisive, but presents a question of degree. From the point of view of moral hazard, it makes a big difference whether approval of the contract was a virtual certainty or a long shot. If the bankruptcy court was unlikely to approve the deal-perhaps because it was far too favorable to the purchaser-then a moral hazard would arise. The prospective purchaser would be better off with the certainty of insurance proceeds than the slim possibility of a favorable consummated contract. On the other hand, if the deal was almost certain to go through, the moral hazard would be slim to none. Whenever approval is less than a virtual certainty, however, there is at least some moral hazard, and the uncertainty could be said to add a gambling component to the insurance contract.
{38} This analysis can explain the results in several of the cases relied upon by Chrysler. In Price, Hane, and Gossett the claimant may ultimately have acquired an ownership interest in the damaged property, but the "expectation of ownership," Gossett, 948 P.2d at 1272, was too contingent, too uncertain, to support an insurable interest. (The other cases cited by Chrysler are distinguishable on other grounds. In Klukavy the question was not so much whether the prospective purchaser had an insurable interest, but whether its interest was superior to the seller's interest. In Mackie & Williams and Phalen Park the issue was whether the insured's alleged property interest was acquired in violation of state law.)
{39} With this analysis in mind, we adopt the following standard. Even though the Purchase Agreement was subject to approval by the bankruptcy court, Mills-Strebeck had an insurable interest in the dealership property if the agreement would in fact have been approved by the bankruptcy court had there been no fire. Although perhaps it would be more accurate to measure the moral hazard in terms of the purchaser's subjective expectations regarding whether the deal would go through, an objective test is more workable and more in keeping with the general approach of determining insurable interest without reference to the state of mind of the particular insured.
{40} Mills-Strebeck may well be able to satisfy the test here. The creditors with a security interest in the dealership property had approved the Purchase Agreement, and Mills-Strebeck apparently contends that the unsecured creditors would have suffered no loss from the agreement because the value of the property was approximately the amount secured by the liens of
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