647 S.E.2d 731
Sometime in 1989, Emogene and Opha Keith applied for and were issued a
policy of insurance by Municipal Mutual Insurance Company (“Municipal Mutual”), which
provided coverage for their home and personal property contained therein. On January 17,
2004, the home and personal property subject to the life estate were destroyed as a result of
fire. Shortly thereafter, Opha Keith submitted a claim to his insurer for the losses resulting
from the fire. On February 24, 2004, Municipal Mutual issued a check in the amount of
$54,000, payable to Opha L. Keith, Emogene Keith, and David Keith. Emogene Keith's
name was included on the proceeds check as the policy was never amended after her death
to remove her as an insured. David Keith was included as a payee on the check based on his
possession of a remainder interest in the property. By agreement of the parties, the original
check issued by Municipal Mutual was voided and the entirety of the funds at issue have
been deposited with the Circuit Court Clerk of Monroe County pending resolution of this
dispute.
By order entered on February 6, 2006, the Circuit Court of Monroe County
certified the following questions:
1. In the event that certain improvements to real estate in the possession of the life tenant, insured against fire on a policy obtained by the life tenant under which only the life tenant is a beneficiary, are destroyed by fire, does the remainderman have an interest in the insurance proceeds though he is neither a named insured or paid any premiums?
2. In the event that the remainderman is determined to have an
interest in the insurance proceeds, is West Virginia Code § 43-
2-1, et seq., appropriate to determine the share of the proceeds
paid to the remainderman?
3. If West Virginia Code § 43-2-1 et seq., is deemed to be an
appropriate method to calculate the remainderman's share in the
insurance from the loss of the structure, is this also applicable
to the loss of personal property on the premises?
4. In the event that West Virginia Code § 43-2-1 et seq., is
determined to be the appropriate method to calculate the
remainderman's share of the insurance proceeds, is the
remainderman precluded from pursuing a negligence claim
against the life tenant for the loss of the improvements?
By order dated June 28, 2006, this Court accepted the certified questions and
docketed the matter for resolution. We proceed to address the questions certified to us from
the circuit court.
Each of them had an insurable interest in the property, but a
policy in the name of one could not cover the interest of the
other. The nature and effect of an insurance contract is to
indemnify the insured against loss or damage, and not some one
else who is not a party to the contract; nor has such other party
any lawful claim upon the amount realized by the assured under
the policy.
Id. at 68.
An oft-quoted explanation for this result is stated in Farmers Mutual Fire &
Lightning Insurance Co. v. Crowley, 190 S.W.2d 250 (Mo. 1945):
The insurance policy is a personal contract; both the life
tenant and the remainderman have insurable interests in the
property; if the life tenant procures the insurance for his
personal indemnity, the remainderman, who did not procure the
insurance, has no cause for complaint, even if the proceeds of
the life tenant's insurance contract exceed the sum which would
indemnify him for his personal loss; the proceeds are of the
insurance contract, not of the property, and do not stand in the
place of the property destroyed.
Id. at 253 (emphasis supplied).
Expounding in a similar vein, a Massachusetts court articulated the following
explanation of why the life estate purchaser is entitled to the full amount of the insurance
proceeds upon the property's destruction:
The fact that the property was insured by the life tenant for its
full value is not enough to show that he [life tenant] intended to
cover the interest of the remainderman. If a life tenant, who has
insured for his own benefit, receives from the insurers more than
the value of the life tenancy, that is a matter between the parties
to the contracts of insurance and creates no claim in favor of the
remainderman in the excess paid over the value of the life
tenancy in the property. The underlying principle is that fire
insurance policies are personal contracts providing for the
payment of indemnity to the insured in case of loss, and the
amount received does not stand for nor represent the property
damaged or destroyed although the measure of indemnity
depends upon the determination of the value of the interest of
the insured in the property covered by the policies. In a word,
the money received by a life tenant from his own contracts of
insurance belongs to him, and he cannot be compelled to hold
the money as though it were substituted for the property or as
though it were the proceeds of the property.
Converse v. Boston Safe Deposit & Trust Co., 53 N.E.2d 841, 843 (Mass. 1944) (emphasis
supplied); accord Gearhart, 119 S.E. at 68 (explaining why a trust relationship does not arise
by virtue of the life tenant's receipt of insurance proceeds); (See footnote 5) 51 Am.Jur.2d Life Tenants and
Remaindermen § 182 (observing “that without an express covenant the tenant for life is not
liable to rebuild a house destroyed by fire not his or her fault, and a life tenant is in no sense
a trustee for the remainderman. If the life tenant is not bound to rebuild, he or she certainly
is not bound to insure for the benefit of the remainderman.”).
As support for his position that this Court should reject the contractual
approach favored by the majority and adopt the quasi-trust relationship approach taken by
the minority, Petitioner looks to this Court's recognition in Keesecker v. Bird, 200 W.Va.
667, 490 S.E.2d 754 (1997), that a life tenant has a duty to preserve the corpus of the estate
and not to commit waste. Id. at 682, 490 S.E.2d at 769. Drawing on this obligation not to
waste, Petitioner suggests that the quasi-trustee approach is the approach more in accord with
the duty not to commit waste. (See footnote 6) Petitioner contends essentially that it is inequitable to allow
a life estate holder, whose interest in the property is less than that of the remainderman, to
benefit from the destruction of the estate. Consequently, he advocates that the remainderman
should, under principles of public policy, receive a share of the insurance proceeds that are
disbursed upon the destruction of the estate property.
At least one court has squarely addressed “the apparent inequity of the
[majority] rule.” Ellerbusch v. Myers, 683 N.E.2d 1352, 1355 (Ind. App. 1997). In adopting
the majority rule, the court in Ellerbusch reasoned away the seeming harshness of the
position by explaining that “a remainderman may protect his interest through an agreement
with the life tenant that the latter carry insurance for the remainderman's benefit” and each
party “can insure for himself.” Id. at 1355. In this fashion, the court acknowledged that
there are ways to prevent the majority position from operating to the disadvantage of the
remainderman.
There are three well-established exceptions to the majority rule that the
remainderman does not have an interest in insurance proceeds recovered upon the destruction
of the life estate. Those exceptions to the rule operate when (1) the instrument creating the
estate expressly provides that the life tenant will insure the property for the benefit of the
remainderman; (2) the life tenant and the remainderman agree to this requirement; or (3)
if a fiduciary relationship exists between the life tenant and the remainderman. See 51
Am.Jur.2d at § 182; Ellerbusch, 683 N.E.2d at 1354.
Having considered the arguments underlying the majority and minority
positions on the issue presented by the first certified question, we believe that the better-
reasoned approach is to apply contractual precepts to resolve the issue of a remainderman's
entitlement to insurance proceeds paid out in connection with the destruction of the property
subject to the life estate. Accordingly, we adopt the majority position to conclude that where
a life tenant insures the property subject to the life estate in his own name and for his own
benefit and pays the premiums from his own funds, he is solely entitled to the proceeds of
the insurance upon a loss absent a provision in the instrument creating the estate that requires
the life tenant to insure the estate for the benefit of the remainderman; an agreement between
the life estate tenant and the remainderman that the estate will be insured for the benefit of
the remainderman; or the existence of a fiduciary relationship between the remainderman and
the life tenant.
While we are certainly not unmindful of the seeming inequities of the situation
presented by this case where the value of a remainderman's inheritance is reduced through
no fault of his own, a remainderman is not without the means to prevent this unfortunate
result. As the Indiana appellate court made clear in Ellerbusch, the seeming harshness of the
majority rule is ameliorated by the fact that the remainderman can procure insurance on his
interest in the estate property and thereby avoid the very inequity about which he complains.
683 N.E.2d at 1355.
Having answered the first certified question in the negative, we do not proceed
to the remaining questions that were conditionally certified based upon our response to the
first question.