Summary
explaining that, under this type of loss payable provision, "[i]f the policy is not collectible by the insured, . . . the loss payee also cannot recover"
Summary of this case from Westfield Ins. Co. v. BancorpOpinion
Docket No. 74084.
Decided January 16, 1985.
David L. Richards, for plaintiffs.
Denenberg, Tuffley, Thorpe, Bocan Patrick (by James K. O'Brien and Susan Tukel), for Great Lakes Mutual Insurance Company.
Mary Catherine Rentz and Stanley Prokop, for Financial Designs, Inc.
Plaintiffs appeal as of right an order of summary judgment granted to defendants. The parties have stipulated to an agreed statement of facts.
Plaintiffs were the owners of a business located in a building at 32435 Grand River in Farmington, Michigan. The premises were leased from H.C.B. Investment Company. Under the lease, plaintiffs were required to maintain fire insurance on the premises.
Plaintiffs entered into a lease-purchase agreement with David A. Sinacola Enterprises, Inc. It provided that the corporation could buy the business, at its option, from the plaintiffs at the end of the lease term. David A. Sinacola Enterprises, Inc., occupied the restaurant premises and ran the restaurant.
David Sinacola obtained insurance coverage on the premises, representing himself as "owner" of the premises. David A. Sinacola, Inc., was the named insured. Michigan National Bank-West Metro, which had financed the plaintiffs' purchase of the restaurant business, was named as mortgagee. H.C.B. Investment Company, owner of the premises, was named as the "loss payee". The insurer was Lake States Mutual Insurance Company and the insurance agent was Financial Designs, Inc.
Michigan National Bank-West Metro requested its deletion from the policy prior to May 28, 1981. Summary judgment was granted to defendants for any claims of plaintiffs based on rights, or assignment of those rights, arising out of their relationship with Michigan National Bank-West Metro.
A copy of the insurance binder was sent to H.C.B. Investment Company, where it was filed. On May 28, 1981, Sinacola cancelled the insurance policy on the behalf of David A. Sinacola, Inc., the named insured. Defendants claim notice of the cancellation was sent to H.C.B. Investment Company. H.C.B. Investment Company denies that notice of cancellation was received.
A fire occurred on the premises on June 15, 1981, causing extensive damage. H.C.B. Investment Company contacted defendants for the purpose of submitting a claim and was informed that the policy was no longer in effect.
Plaintiffs made a settlement regarding the loss with H.C.B. Investment Company and its rights were assigned to plaintiffs. Plaintiffs filed suit on October 19, 1981, alleging breach of the fire insurance policy and negligence with respect to notification of the named payee of the cancellation of the insurance policy by David A. Sinacola, Inc. Defendants moved for summary judgment claiming that H.C.B. Investment Company (the predecessor in interest of plaintiffs) was a loss payee and was thus not entitled to notice of cancellation. Summary judgment was granted to defendants.
The issue is whether the trial court erred in holding that a loss payee is not entitled to receive the 10-day notice of cancellation of a fire insurance policy which mortgagees must be given under MCL 500.2832; MSA 24.12832. The statute states in pertinent part:
"If loss hereunder is made payable, in whole or in part, to a designated mortgagee not named herein as the insured, such interest in this policy may be cancelled by giving to such mortgagee a ten days' written notice of cancellation." (Emphasis added.)
Plaintiffs, as assignees of the loss payee, claim they were entitled to receive the same 10-day notice that the statute requires an insurer to give to a mortgagee. We disagree. The only designated mortgagee, Michigan National Bank-West Metro, had been deleted from the policy at its request. H.C.B. Investment Company was listed only as a loss payee.
This was a contract with an open or simple loss payable clause. The entity designated as loss payee is merely an appointee who receives the proceeds to the extent of his interest. The validity of the contract is not dependent upon the existence of an insurable interest in the loss payee. Under an open loss clause, the policy is subject to any act or omission of the insured which might void, terminate, or adversely affect coverage. If the policy is not collectible by the insured, as in this case because it was cancelled by the insured, the loss payee also cannot recover. Van Buren v The St Joseph County Village Fire Ins Co, 28 Mich. 398, 404 (1874); 5A Appelman, Insurance Law Practice, § 3335, pp 143-146. The New York Court of Appeals addressed an identical issue in Schleimer v Empire Mutual Ins Co, 71 Misc.2d 1014, 1015; 337 N.Y.S.2d 872 (1972), aff'd 43 App. Div. 2 d 825; 352 N.Y.S.2d 429 (1974), and stated:
"The issue in this case is whether an insurer of an automobile is under a duty to give notice to a party named as `loss payee' of cancellation of the policy.
"A party so designated has generally been considered to be a mere appointee with the right to receive the proceeds of the loss to the extent of his interest. Under a limited loss payable clause the rule is that if the policy is not collectible by the insured, the appointee cannot recover (Appelman Insurance Law and Practice, Vol 5A, sec 3335, pp 143, 144, 146). There are, of course, loss payable clauses which more fully protect the interests of the payee but, in this case, the designation was in a binder in which the plaintiff was only described as loss payee. We cannot hold that this plaintiff is entitled to the same protection as a mortgagee under a policy containing the standard mortgagee clause since notice must be and is required under that clause (Insurance Law, § 168).
"In the absence of either contractual or statutory protection, the loss payee cannot recover unless the named insured had a viable policy and could collect the proceeds."
Similarly, in this case the plaintiffs' predecessor in interest was not a designated mortgagee with an independent contractual relationship with the insurer, and therefore plaintiffs' predecessor in interest was not entitled to the statutory notice of cancellation required by MCL 500.2832; MSA 24.12832.
Affirmed.