## Facts

- Richard and Margaret Gossett sought to acquire an unfinished house, complete it, and resell it for profit.
- They entered an earnest money agreement but could not obtain conventional financing.
- They used a broker to obtain temporary purchase-price financing through an investor-lender; the transaction was structured through Trusty Deed Services.
- Before closing, the Gossetts assigned all interest in the purchase-and-sale agreement to Trusty Deed and agreed title would be taken in Trusty Deed’s name.
- Title closed in Trusty Deed’s name; the Gossetts had no written agreement giving them a future right to purchase the property from Trusty Deed or the lender.
- Farmers issued a homeowners policy naming the Gossetts as insureds and Trusty Deed as mortgagee; the agent asserted the policy would not have been issued in the Gossetts’ names had he known they would not be legal owners.
- After closing, the Gossetts performed work to finish the house, stored some possessions there, and family members occasionally stayed there, but it was not their residence.
- The house burned after Mr. Gossett accidentally knocked over a kerosene heater.
- Farmers paid for some personal property losses and resolved the interests of Trusty Deed and the lender, but disputed that the Gossetts had any insurable interest beyond the value of their improvements.
- The Gossetts sued for additional policy benefits, asserting an insurable interest broader than their improvements, including anticipated resale profits.

## Issues

1. Whether insureds who lack legal title and lack an enforceable right to acquire title nonetheless have an insurable interest in the structure beyond the value of their preloss improvements, including the property’s full value or anticipated resale profits.
2. Whether attorney’s fees may be awarded to insureds compelled to litigate to obtain coverage under the equitable rule allowing such fees in coverage disputes, and whether that rule is constitutional as applied.

## Decision

- The Washington Supreme Court reversed the Court of Appeals and reinstated the trial court’s limitation on the Gossetts’ recovery.
- The court held the Gossetts had an insurable interest, but only to the extent of the value of improvements (labor and materials) they made before the fire.
- The court rejected coverage based on the full value of the house or on anticipated profits because the Gossetts held no legal or equitable ownership and no enforceable expectancy to obtain title.
- The court upheld the constitutionality and application of the equitable attorney-fee rule awarding fees to insureds compelled to litigate to obtain coverage, and affirmed the fee award to the Gossetts.

## Legal Principles

- An insurance policy that limits recovery to the insured’s “insurable interest” incorporates the statutory requirement that the insured possess a lawful and substantial economic interest in the property’s preservation.
- The insurable-interest requirement serves to prevent wagering and to reduce moral hazard by avoiding situations where an insured could be financially better off after a loss than before it.
- A person without legal title, equitable ownership, or an enforceable right to acquire the property generally lacks an insurable interest in the property’s full value; speculative expectations such as hoped-for resale profits do not create a covered insurable interest.
- Where the insured’s only legally cognizable stake is the value added through improvements, the insurable interest, and thus recoverable benefits, is limited to the value of those improvements.
- In coverage disputes, insureds who must litigate to obtain the benefit of the insurance contract may recover reasonable attorney’s fees under an equitable rule; that rule is a valid judicial exercise and does not violate separation-of-powers principles.

## Conclusion

The court limited recovery under a homeowners policy to the insureds’ actual insurable interest—here, the value of prefire improvements—because they held neither title nor an enforceable right to obtain it, and it reaffirmed that prevailing insureds may recover attorney’s fees when forced to litigate to secure coverage.


Gossett v. Farmers Ins. Co. of Wash., 133 Wn. 2d 954, 948 P.2d 1264 (Wash. 1997)