I can even think of situations where it would make sense to take out insurance on your neighbors home. For example, if you observe that your neighbors are hoarders, you might try to get insurance on their home in anticipation of the home's eventual condemning (which would wreck your homes value through geographical association).

The only problem there is that I suspect that the insurance company would not be particularly keen on that.

Yeah, that's why you generally need an Insurable Interest in someone to buy life insurance on them: http://en.wikipedia.org/wiki/Insurable_interest