Beware Direct Transfer Designations (TODs and PODs)- Part III- Transfer on Death Deed for Real Estate Results in Loss of Insurance Coverage and Impairment of Asset Value

In Dawn Strope-Robinson v. State Farm Fire and Casualty, Dawn became the owner of a home owned by her deceased uncle pursuant to a transfer on death deed. Several days after her uncle’s death, her uncle’s ex-wife intentionally started the house on fire. The resulting damage was substantial.

Dawn filed a claim against her uncle's insurance company.  The fire and resulting damage occurred prior to Dawn even having the opportunity to file an affidavit confirming her father's death, and so she had not yet obtained insurance for the property in her name. 

The insurance company denied the claim related to the real property on the basis that the policy only insured the uncle as an insured, and not any subsequent owner.  Dawn sued.  

The Eighth Circuit Court ruled in favor of the insurance company on the basis that transfer to Dawn occurred immediately upon death, Dawn was not covered under her uncle’s policy and her uncle’s estate had no insurable interest in the property.

This case has a complex procedural history and Dawn made a number of equitable and statutory arguments supporting her claim for insurance under her uncle's policy, all of which were rejected by the court.  The case was also decided applying Nebraska law. 

Of course, standard policies insure, for at least a period of time, fiduciaries of the estate of a deceased insured.  The reason that these provisions did not apply in the Strope-Robinson case is that the real property was not an asset of the probate estate, and the court ruled specifically that the uncle's estate had no insurable interest in the property. In other words, the successful effort to avoid probate meant that the uncle's insurance terminated immediately upon his death. 

   

The case should give pause to the reflexive use of a transfer on death deed or beneficiary affidavit as an inexpensive estate planning tool. 

Ohio and Missouri law differs.  In Ohio, though, the holding in Strope-Robinson appears consistent with the result predicted by the Walker case previously discussed in a separate article on this blog.  For more information see:

• Beware Direct Transfer Designations (TODs and PODs)- Part II: Ohio Transfer of Death Designation Affidavit (TODDA) for Real Estate- Lapse of Insurance Coverage.

Of course, Direct Transfer Designations is also a separate subject of the first article in this series:

• Beware Direct Transfer Designations (TODs and PODs).

Thanks to Attorney Mary Vandenack for contributing commentary on the case to Steve Leimberg's Estate Planning Newsletter, which inspired this article.