A Veterans Day Weekend Property Insurance Case  | Property Insurance Coverage Law Blog

An insurance company issued a property insurance policy to defendants, naming the Veterans Administration as mortgagee under a standard mortgage provision. The policy contained the following provision regarding additional insurance:

Other Insurance: Unless otherwise provided in writing herein, any other insurance covering any building insured under this policy is prohibited. If, during the term of this policy, the insured has other insurance, whether recoverable or not, and unless permitted by a written endorsement added hereto, the insurance under this policy will be suspended and of no effect.

The policyholders took out another policy on the property. A loss has occurred. The insurance company refused to pay policyholders because of this clause, but paid the Veterans Administration as mortgagee. The court noted these facts:¹

Plaintiff paid the Veterans Administration on September 29, 1965, and filed this action against defendants on November 30, 1967, to recover the amount so paid from defendants, alleging that he was legally subrogated to all rights of the Veterans Administration v. Defendants.

The record does not disclose any provision in the policy or mortgage imposing a personal obligation on defendants to reimburse plaintiff for partial or full payment of the mortgage debt, the only provision being that upon payment in full mortgage, plus interest, the Company would receive an assignment of the mortgage security.

The court ruled that the insurance company could not recover from its policyholders for the following reasons:

There is no policy provision providing for personal liability against the defendants, but the mortgage clause subrogates the company to the “rights” of the Veterans Administration “in all securities held as security” upon payment in their favor if there is no liability to the defendants. under the policy. These securities were the defendants’ note and a $15,000 mortgage, which could not be divided and which the Veterans Administration had the right to retain until its loan was fully repaid.

The only “rights” the Veterans Administration had with respect to defendants were those it acquired under the note and mortgage executed by defendants, which were not in default at any time. Obviously, the Veterans Administration had no right to sue the defendants under its mortgage for the $6,200.00, and therefore the plaintiff could not acquire anything from the Veterans Administration unless he pays the entire balance owed on his loan and acquires the defendants’ note and mortgage. In no event would the plaintiff have the right to sue the defendants for $6,200.00, but he would only be able to foreclose under the mortgage security in the event of default in payment of the mortgage debt.

The outcome could have been different if the insurance company had paid off the mortgage in full and been awarded the rights to the mortgage. For readers interested in learning more about the difference between the standard mortgage clause and the payable loss clause, please read Payable loss clauses and standard mortgagee clauses: know the basic rule and the difference.

I would like to salute the veterans of Merlin Law Group Gassery reception and Todd Frederick.

Thought of the day

We remember those who were called to give all that a person can give, and we remember those who were willing to make that sacrifice if asked in the line of duty, even if it was not never was. Above all, we remember the dedication and bravery with which they all ennobled their nation by becoming champions of a noble cause.

-Ronald Reagan

¹ MFA Mutual Ins. Co. v. Huddleston459 SW2d 104 (1970 application).