The Iowa Court of Appeals upheld a ruling by a lower court that a builder’s risk insurance policy remained in effect after the policyholder transferred the property, by warranty deed, to another party in exchange for that party’s agreement to use his good credit to borrow additional money required to finish a project on the land.
Farm Bureau Mutual Insurance Co. had appealed the district court’s ruling that the builder’s risk policy did not terminate when the policy holder transferred the property.
According to a summary of the case provided by the Court of Appeals in Farm Bureau Mut. Ins. Co. v. McAndrews Livestock Co., Inc., the insurer argued “that the builder’s risk policy does not provide coverage for harm done to the building on the land after the policy holder transferred the warranty deed.”
Farm Bureau Mutual asserted that the policyholder “no longer had an insurable interest in the land because the third party qualified as a ‘purchaser’ who ‘accepted’ the property which terminated the insurance coverage pursuant to the agreement.
The appeals court, however, determined that the coverage continued because the “policy holder still retained an insurable interest because the third party did not ‘accept’ the property.” Instead, the transference of the warranty deed was “to facilitate a lending arrangement and is not the kind of conveyance described in the cessation clause.”
The case was considered by Justices Sackett, Potterfield and Tabor.
Justice Tabor disagreed with the two other judges and in a written dissent asserted that the policy holder lost his insurable interest when he transferred the warranty deed.
“The policy provided that coverage would end if ‘the property is accepted by the purchaser,’ Justice Tabor wrote. “There is no ambiguity in this policy provision. The warranty deed given to Andersen conveyed a fee simple title and puts no restrictions or conditions on Andersen’s use or ownership. He was a purchaser of the property and accepted it by having the deed recorded. Any interest retained by McAndrews was a mere expectancy, not an insurable interest.”
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