Insurance and proceeds

84-2a-218. Insurance and proceeds. (1) A lessee obtains an insurable interest when existing goods are identified to the lease contract even though the goods identified are nonconforming and the lessee has an option to reject them. (2) If a lessee has an insurable interest only by reason of the lessor's identification of the goods, the lessor, until default or insolvency or notification to the lessee that identification is final, may substitute other goods for those identified. (3) Notwithstanding a lessee's insurable interest under subsections (1) and (2), the lessor retains an insurable interest until an option to buy has been exercised by the lessee and risk of loss has passed to the lessee. (4) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law. (5) The parties by agreement may determine that one or more parties have an obligation to obtain and pay for insurance covering the goods and by agreement may determine the beneficiary of the proceeds of the insurance. History: L. 1991, ch. 295, § 27; February 1, 1992. KANSAS COMMENT, 1996 This section also is derived from section 84-2-501 and defines when the lessor and the lessee have an insurable interest in the goods. Subsection (1) states the basic rule that a lessee obtains an insurable interest in the goods when they are identified to the contract. See 84-2a-217. Subsection (2) permits the lessor to substitute other goods under specified circumstances. Subsection (3) modifies the rule of section 84-2-501(2) and provides that the lessor retains its insurable interest unless and until the lessee purchases the goods by exercising an option and risk of loss passes to the lessee. Subsection (4) makes clear that the insurable interests of both the lessor and the lessee under this section are in addition to any insurable interests established under non-Code law. Finally, new subsection (5), in the words of the Official Comments, "reflects the common practice of shifting the responsibility and cost of insuring the goods between the parties to the lease transaction."