Recent Development in the Law: Strope-Robinson v. State Farm Fire & Casualty Co.

Transfer on Death Deeds (commonly referred to as a TOD deed) have been a popular estate planning tool in Virginia for years. TOD deeds, like any other deed, convey real property from one person to another. While they are recorded prior to the grantor-homeowner’s death they do not become effective until after the grantor’s death, thereby allowing the homeowner to retain all rights, title, and interest in their home during their lifetime, but allowing the property to easily pass to the grantee outside of probate upon the individual’s passing. The fact that the grantor retains full rights of ownership during lifetime (including the right to otherwise sell or transfer the property) and may also revoke the TOD deed at any time prior to death, have made the TOD deed a very attractive and easy to use estate planning tool for years.       

            However, in December 2019, there was a concerning and unforeseen new development related to transfer on death deeds in Strope-Robinson vs. State Farm Fire & Casualty Co, 429 F.Supp.3d 634 (D. Minn. 2019). In this case, Mr. Strope executed and recorded a TOD deed that would transfer his home to his niece, Ms. Strope-Robinson. The home was insured by State Farm at the time, and Mr. Strope was the only named insured under that policy. Mr. Strope died on August 14, 2017, effectively transferring the home to Ms. Strope-Robinson pursuant to the Transfer on Death Deed.

            Unfortunately, on August 20, 2017, just mere days after the death of Mr. Strope and the transfer of the property to Ms. Strope-Robinson, Mr. Strope’s ex-wife purposefully set the home ablaze and burned it to the ground. Ms. Strope-Robinson filed an insurance claim with State Farm for the destruction of the home. The court eventually appointed Ms. Strope-Robinson as the Special Administrator of the Estate on October 24, 2017, and the Estate’s Personal Representative on September 17, 2018. However, State Farm subsequently denied the claim, and Ms. Strope-Robinson sued State Farm to recover the casualty insurance benefit.

            In its order, the Court relied on Minnesota’s long-standing principle that fire insurance policies are contracts that are personal to the insurer and the named insured, and do not attach to, or run with the insured property, i.e., the insurance coverage does not transfer with the property. Therefore, because Ms. Strope-Robinson was not a party to the insurance contract, and because Mr. Strope no longer owned the house due to his passing (and therefore did not have an insurable interest in the house) at the time of the fire, there was no named insured with an interest in the dwelling, and no casualty insurance coverage was available to Ms. Strope-Robinson.

            Ms. Strope-Robinson appealed. The Eighth Circuit ruled in favor of State Farm on the basis that the transfer of the property to Ms. Strope-Robinson occurred immediately upon the death of Mr. Strope, that Ms. Strope-Robinson was not covered under her uncle’s policy and that her uncle’s estate had no insurable interest in the property since the property had been transferred to Ms. Strope-Robinson.

            This case will have an impact on the use of transfer on death deeds as an estate planning tool as the immediate transfers of property by TOD deed, while convenient, would leave the new owner with uninsured property and open to risk until they could get insured. It may be more advisable to leave property to transfer to beneficiaries via a will or trust to avoid a gap in homeowner’s insurance coverage. Although in Virginia and North Carolina real property passes to the beneficiary in a Will immediately upon the client’s death, as with TOD deeds, insurance companies to date have not denied coverage to the beneficiary. It should be noted, however, that a similar case could be brought in the future arguing that properties that transfer by will or trust are not subject to coverage for the same reasons outlined in Strope-Robinson v. State Farm.

            So, what can homeowner’s do to ensure that beneficiaries are protected from suddenly owning uninsured property upon their passing? Normally, only individuals with an actual present interest in the property can be listed as an additional insured, i.e., someone listed on the title or mortgage. Because the beneficiary only has a future interest in the property they cannot be added as an insured individual on the policy. A beneficiary could, however, be listed as “Additional Interest” instead of “Additional Insured” in some cases so that they would be notified of certain policy information, the homeowner’s passing, etc. As this will not offer much protection to individuals with a future interest a property, this may be an issue that will need to be solved by the implementation of legislation.

Estate planners will certainly need to discuss this issue with clients who prefer to use transfer on death deeds or who have recently executed transfer on death deeds. When the client prefers to use the transfer on death deed, the client should ask his or her insurance company to amend the policy to name the beneficiaries under the transfer on death deed as an additional interest or loss payee. When the real property passes at death by TOD deed, Will or intestate succession, the beneficiaries should promptly seek insurance for themselves.

Ask The Attorney

Client: Should I have a power of attorney?

Attorney: For many clients, this is the most important estate planning document. It is particularly helpful if you become incapacitated. A properly drafted power of attorney can avoid certain costly legal proceedings and can serve as a tool to protect your assets if you require nursing home care.

Ask Bertie

Hook Law Center: Hey Bertie, where and when were the first Olympic Games held?

Bertie: The first recorded Olympic Gales were held at Olympia in the Greek city-state of Elis in 776 B.C., but it is generally accepted that the Olympics were at least 500 years old at that time. The ancient Olympics, held every four years, occurred during a religious festival honoring the Greek god Zeus. By the fifth century B.C. contestants came from as many as 100 cities throughout the Greek empire. Initially, Olympic competition was limited to foot races, but a number of events were later added including wrestling, boxing, horse and chariot racing, etc. In 393 A.D. the Roman Emperor Theodosius I, a Christian, abolished the Games as part of his efforts to suppress paganism in the Roman Empire. The Olympic Games were then reborn on April 6, 1896 after having been banned for 1,500 years.