Ace Investments, Inc., is the mortgagee for a warehouse owned by Best Storage, Inc. Ace obtains an insurance policy from Complete Insurance Corporation (CIC) to cover the warehouse. Best also obtains a policy from CIC to cover the warehouse. Later, Best sells the warehouse to Delta Company but keeps the policy. Delta also obtains a policy from CIC to cover the warehouse. Ace agrees to act as Delta's mortgagee. A fire totally destroys the warehouse. Who can recover for the loss?
What will be an ideal response?
Ace has an insurable interest in the warehouse. To have an insurable interest, one must be in a position to suffer a loss from its destruction. A mortgagee can have an insurable interest in the property that serves as the security for the mortgage, because the mortgagee can suffer a loss if the property is destroyed. With an insurable interest, there can be an enforceable insurance contract. Thus, Ace can recover for the loss of the warehouse up to the amount of its mortgage. Delta can also recover for the loss up to the amount of its interest in the warehouse. Because an insured must have an insurable interest in property at the time that the loss occurs, Best cannot recover for the loss of the warehouse, even though it retained the insurance policy after selling the property. Best's insurable interest terminated when it sold the property.
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