Berrett v. Standard Fire Insurance

DEBORAH S. EYLER, J. The Circuit Court for Baltimore City granted summary judgment in favor of The Standard Fire Insurance Company (“Standard”), the appellee, in a breach of contract claim by Robert C. Berrett, the appellant. Berrett had alleged in his complaint that he had an insurable interest in real property located at 4305 Gallatin Street, in Hyattsville (“the Property”); that the Property had been damaged by fire; and that Standard had wrongfully denied payment under a homeowner’s insurance policy he had purchased from Standard on the Property, and that was in effect on the date of the loss. On appeal, Berrett poses two questions, which can be reduced to one: Did the circuit court err in granting summary judgment in Standard’s favor? 1 For the following reasons, we shall reverse the judgment of the circuit court and remand the case for further proceedings. FACTS AND PROCEEDINGS Berrett is the son of Charlotte H. Berrett.

He has four sisters — June Soroka, Miracle Destiny, Charlene Berrett, and Carol Berrett — who are daughters of Mrs. Berrett. According to Berrett, on August 4, 1973, Mrs. Berrett executed a deed granting the Property to him. The 1973 deed states that, in consideration for improvements Berrett made to ³²⁶ Mrs. Berrett’s residence at 2304 Fordham Street, also in Hyattsville, I hereby and herein grant to and deliver to my son, Robert Carlyle Berrett all that property ... known as 4305 Gallatin Street.... I covenant that I warranty the property specifically.

It is further agreed herein and the right is reserved by me that I shall retain a life estate in the above described Gallatin Street property and that I shall for my life be entitled to all rents arising out of the property. It is further agreed that this DEED shall not be recorded until after my death, the death of me, Grantor of this DEED. In addition to being signed under seal by Mrs. Berrett, the 1973 deed was signed by Berrett and by Vivian Berrett, Mrs. Berrett’s sister-in-law. From some time not clear from the record until late in 1995, Berrett lived in California.

He then returned to Maryland. From late 1995 through the Spring of 2000, he lived off and on at the Property and made various improvements to it. In February 1999, Berrett obtained a homeowner’s insurance policy (“Policy”) for the Property through Standard. The Policy was in his name alone and was in effect for one year.

It provided coverage for, among other things, property damage caused by fire. Berrett renewed the Policy in February 2000. He paid the premiums on the Policy. On March 22, 2000, in the Circuit Court for Prince George’s County, Berrett filed an action seeking appointment of a guardian of the person and property of Mrs. Berrett.

In his verified complaint, Berrett stated that Mrs. Berrett was the owner of the Property (and the Fordham Street property as well). He so stated in two subsequent verified complaints in the same action. In other filings in the guardianship action, Berrett again stated that the Property was owned by his mother. ³²⁷ On July 24, 2000, the circuit court held a hearing and found that Mrs. Berrett was disabled and unable to care for her person or property. That same day, by order entered July 25, 2000, the court appointed Theresa Grant, of the Prince George’s County Department of Family Services, guardian of Mrs. Berrett’s person; and Richard C. Daniels, Esquire, guardian of her property. 2 On September 12, 2000, Daniels petitioned the court for approval for the sale of the Property.

It appears that Daniels had received an offer to purchase the Property for $89,000. Berrett objected to the petition on the ground that the purchase price was too low. On November 8, 2000, after holding a hearing, the court determined that “the ward ha[d] agreed to the sale” and issued an order granting Daniels the authority to sell the Property for $89,000. In the meantime, a contract had been submitted to purchase the Property for that sum.

On November 14, 2000, Berrett filed a motion opposing the court’s approval of the contract of sale. He alleged that there was no need to sell the property, as he was supplementing the payments to Mrs. Berrett’s nursing home; that $89,000 was not a fair price for the property; and that Mrs. Berrett did not want to sell the Property because she intended to reside there in the future. Berrett did not inform the guardianship court or the guardians that he had an interest in the Property. He did not submit the 1973 deed to the guardianship court or the guardians, or mention its existence.

All the assertions he made to the guardianship court and the guardians were to the effect that his mother was the only person with an interest in the Property. The contract of sale for the Property provided that it was being conveyed in fee simple and that “[t]he Property is to be held at the risk of Seller until legal title has passed or possession has been given to Buyer.” It further stated: ³²⁸ If, prior to the time legal title has passed or possession has been given to Buyer, whichever shall occur first, all or a substantial part of the Property is destroyed or damaged, without fault of Buyer, then this Contract, at the option of the Buyer, upon written notice to Seller, shall be null and void and of no further effect.... On November 25, 2000, after the court had approved the contract of sale but before settlement, a fire broke out at the Property, causing substantial damage to it. Thereafter, Ber-rett made a claim against the Policy.

Standard conducted a lengthy investigation of the claim. On May 10, 2002, during an examination under oath, Berrett produced the 1973 deed. Ultimately, Standard denied Ber-rett’s claim on the ground that he did not have an insurable interest in the Property on the date of the fire. On November 24, 2003, in the Circuit Court for Baltimore City, Berrett filed suit against Standard for breach of contract. 3 He alleged that Standard had issued, for consideration, the Policy, which was valid and in force on the day of the fire; that the fire loss was a covered risk; that he had an insurable interest in the Property, by virtue of the 1973 deed; that he had resided in the Property at times and had made improvements to it, and therefore had an equitable insurable interest in it as well; and that Standard had wrongfully denied his claim.

Discovery ensued. Berrett’s sister June testified that she knew about the 1973 deed. His sister Miracle testified that she did not know about the deed, and, when shown it, questioned the genuineness of her mother’s signature. Vivian Berrett (whose last name by then was Baker) testified that she recalled witnessing Mrs. Berrett’s signature on the 1973 deed and that it was genuine. ³²⁹ On November 24, 2004, Standard filed a motion for summary judgment.

It argued that, because the guardianship court had approved the contract of sale for the Property before the fire, Berrett did not have an insurable interest in the Property by the date of the fire, and hence “Maryland law prohibits recovery under the policy.” Alternatively, it argued that, even if Berrett had an insurable interest in the Property on the day of the fire, he was precluded by collateral estoppel to raise that issue because the issue of ownership of the Property had been fully and finally decided in the guardianship proceeding, to which Berrett was a party and in which he had an opportunity to assert his interest. Finally, Standard argued, also alternatively, that the doctrine of estoppel by admission applied because Berrett had asserted throughout the guardianship proceeding that Mrs. Berrett owned the Property. For purposes of summary judgment only, Standard assumed that the 1973 deed was valid. 4 In his opposition to the motion for summary judgment, Berrett argued that he had an insurable interest in the Property under the 1973 deed and that his interest was not extinguished by the contract of sale, because the court-approved sale “had not been consummated” by then. Hence, he had an insurable interest on the day of the fire.

He further argued that he was not collaterally estopped to assert his interest in the Property because the issue of insurable interest was not litigated in the guardianship proceeding. Finally, stating, “While one who owns property certainly has an insurable interest in said property, ownership is not the only factor in determining an insurable interest,” he argued that estoppel by admission did not apply because his “acknowledgment that his mother was the legal owner of the property in the Guard ³³⁰ ianship proceeding [was] not inconsistent with his claim made under the [P]olicy for which he is the named insured.” 5 In a reply memorandum, Standard argued that the 1973 deed, if effective, gave Berrett an indefeasibly vested remainder, and noted that the deed might not have been effective, as it was never recorded. The court held a hearing on the motion for summary judgment on February 2, 2005. At the conclusion of the hearing, the court stated: [I]t seems to the Court and I so find that [Standard] is entitled to have their motion for summary judgment granted for the reasons stated in their memorandum in support of the motion that Mr. Berrett is collaterally estopped from claiming an interest in the property.

In his testimony before [the guardianship court] in Prince George’s County, he fully acknowledges several times throughout the proceedings, the guardianship proceedings, etc., that his mother was the owner of the property. There is nothing that says he’s the owner or has any interest in the property other than an unrecorded deed which didn’t give him a remainder interest, it gave him a fee simple interest. He’s not claiming that he has a fee simple, had a fee simple interest in the property. He’s claiming that he had, his mother had a life estate, there’s no document that sets up a life estate and that he had the remainder interest.

So I think that he’s testified under oath too many times that his mother was the owner of the property to now come in and say no, he was the owner of the property and that’s his insurable interest. So, I think he’s barred by the collateral estoppel and estoppel by admission. So I will grant their motion for summary judgment. Thank you.

Berrett noted a timely appeal to this Court. We shall include additional facts as pertinent to our discussion. ³³¹ DISCUSSION By common law, and as subsequently codified in the Insurance Article, Maryland follows the insurable interest doctrine. That doctrine is based on the public policy of discouraging insurance policies that, in effect, are wagering contracts. See Bennett v. Mutual Fire Ins.

Co., 100 Md. 337, 340 , 60 A. 99 (1905) (property insurance); see also Beard v. American Agency Life Ins. Co., 314 Md. 235, 257 , 550 A.2d 677 (1988) (life insurance). With respect to property insurance, the theory is that one who obtains an insurance policy on property he has no interest in preserving is merely wagering on its loss. Md.Code (1995, 2003 RepLVoL), section 12-301 of the Insurance Article (“Ins.”), sets forth the insurable interest doctrine as it pertains to property insurance.

An “insurable interest” is “an actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance against loss, destruction, or pecuniary damage or impairment to the property.” Id. at § 12-301 (a). A “contract of property insurance or a contract of insurance of an interest in or arising from property is enforceable only for the benefit of a person with an insurable interest in the property at the time of the loss.” Id. at § 12-301(b). Finally, as relevant to this case, subsection (c) provides that “[a]n insurable interest in property is measured by the extent of possible harm to the insured from loss, injury, or impairment of the property.” Id. at § 12-301(c). 6 The central question in this case is what insurable interest, if any, Berrett had in the Property at the time of the loss, i.e., the day of the fire. Berrett makes two arguments as to why he had an insurable interest.

First, under the 1973 deed, he had a remainder interest in the Property that was an insurable interest. Second, because he had made repairs to the ³³² Property, he had an equitable and therefore insurable interest in the value of the repairs. As noted above, for purposes of summary judgment the parties and the circuit court assumed that the 1973 deed is authentic. By the plain language of the deed, Mrs. Berrett granted the Property to Berrett, but reserved a life estate in herself.

A life estate may be created by language of reservation. Bowie v. Bowie, 208 Md. 623, 626-27 , 119 A.2d 436 (1956); Baden v. Castle, 28 Md.App. 64, 69-72 , 344 A.2d 171 (1975). When property is granted but a life estate is reserved, the grantee acquires a remainder interest. Baden, supra, 28 Md.App. at 72-74 , 344 A.2d 171 .

Thus, the deed in this case created a life estate in Mrs. Berrett, by reservation, and a remainder in Berrett. Even though a remainderman does not have the right of present possession of the property, he is held to be seized of his remainder. Carrier v. Crestar Bank, 316 Md. 700, 713-14 , 561 A.2d 227 (1989). A remainder is vested when it is a present interest held by a certain and definite person to be enjoyed in the future, upon the cessation of the previous (life) estate.

Kemp v. Bradford, 61 Md. 330, 334-36 (1884). A distinguishing characteristic of a vested remainder is the present capacity to take possession, if the possession by the life tenant were to become vacant, with the certainty that the event on which the vacancy depends will happen at some time. Id. A remainder is vested even though the time of enjoyment is postponed or uncertain (as the remainderman may die before the life tenant dies).

Id. Here, Berrett’s remainder was vested because he is a certain and definite person who will enjoy the Property in the future, upon the cessation of his mother’s life tenancy. A vested remainder subject to a life estate is a fee simple interest in property. Dean v. Director of Finance of Montgomery County, 96 Md.App. 80, 88 , 623 A.2d 707 (1993).

A life estate may be created with a right or power of the life tenant to dispose of the property or to use or consume ³³³ it in whole or in part. Burke v. Burke, 204 Md. 637, 644 , 106 A.2d 59 (1954). In that situation, the remainder interest is defeasible. See In re Trust of Lane, 323 Md. 188, 197 , 592 A.2d 492 (1991).

Upon the sale by the life tenant of the property, the remainder interest is destroyed. Burke, supra, 204 Md. at 644 , 106 A.2d 59 . The language of the 1973 deed in this case did not couple the reservation of a life estate in Mrs. Berrett with the right or power to dispose of the Property or use or consume it in whole or in part. Accordingly, the deed granted Berrett a vested, indefeasible remainder interest in the Property.

A life tenant can sell his or her life estate in property. See generally Reeside v. Annex Bldg. Ass’n of Balt. City, 165 Md. 200 , 167 A. 72 (1933).

The estate as sold becomes an estate pur autre vie (for the life of the original life tenant). Devecmon v. Devecmon, 43 Md. 335, 348 (1875). A life tenant who does not have the power to dispose of the property cannot convey the remainderman’s interest, however. Reeside, supra, 165 Md. 200 , 167 A. 72 .

A remainderman likewise can sell his remainder interest in the property, but cannot convey the life tenant’s interest. Culver v. Culver, 47 Md.App. 579, 588 , 425 A.2d 222 (1981). The 1973 deed that reserved Mrs. Berrett’s life tenancy and created Berrett’s remainder was not recorded; in fact, the language of the deed directed that it not be recorded until Mrs. Berrett’s death. Under Md.Code (1974, 2003 RepLVol.), section 3-101 of the Real Property Article (“RP”), “[e]xcept as otherwise provided in this section, no estate of inheritance or freehold, declaration or limitation of use, estate above seven years, or deed may pass or take effect unless the deed granting it is executed and recorded.” The origin of this recording statute is Chapter 14 of the Acts of Assembly of 1766, Laws of Maryland, 1765-1784.

United States v. Gallas, 269 F.Supp. 141, 148 (D.Md.1967). The purposes of the recording statute are