Personal Contract

Property and liability insurance policies cover persons and not property or operations. Although the terms "insured my house" or "insured my motorcycle" are used commonly, they are not technically correct. The contract between the insurer and the insured is a personal contract between an insuring entity and a person(s) based upon their financial, "insurable interest", in the object or liability being insured. In other words, the question of whether payment is due upon the occurrence of a contingency, and how such payment will be measured, depends upon economic loss suffered by the person(s). For example, if a person sells her home and gives a contract covering the home to the new owner and a loss occurs, the insurer will not pay the new owner since there is no privity of contract. The insurer will not pay the old owner because there is no insurable interest.