Marion v. Town and Country Mut. Ins. Co.

*
Sharon MARION v. TOWN and COUNTRY MUTUAL
INSURANCE COMPANY

CA 97-162                                          ___ S.W.2d ___

                  Court of Appeals of Arkansas
                           Division IV
               Opinion delivered October 22, 1997


1.   Insurance -- property -- insurable interest must exist for policy to be
     enforceable. --  Arkansas Code Annotated section 23-79-104 (Repl.
     1992) requires that, for an insurance policy to be
     enforceable, an insurable interest in the insured property
     must exist both þat the time of the effectuation of the
     insurance and at the time of the loss.þ  

2.   Insurance -- property -- appellant's insurable interest terminated. -- The
     confirmation of a foreclosure sale and the delivery of a
     commissionerþs deed to the buyer had the effect of terminating
     appellantþs insurable interest in the property. 

3.   Supersedeas -- function of. -- The function of a supersedeas is to
     stay the execution of a judgment pending the period it is
     superseded, but the validity of the judgment is not affected
     by the stay; it is merely a legal prohibition from execution
     on the judgment until that prohibition has been removed by
     operation of law or a judgment of the appellate court; the
     supersedeas does not have the effect of vacating the judgment
     but only stays proceedings to enforce it.

4.   Supersedeas -- effective only to prohibit further execution of judgment --
     did not nullify confirmation of sale or commissioner's deed. -- Where at
     the time appellant filed her supersedeas and obtained a court
     order staying execution on the default judgment against her,
     the court had already confirmed the foreclosure sale, the
     commissionerþs deed had been executed and delivered, and title
     had passed to the holder of appellant's promissory note, the
     supersedeas and stay order were effective only to prohibit
     further execution of the judgment by the holder of the
     promissory note and did not have the effect of nullifying the
     courtþs confirmation of the sale or the commissionerþs deed
     that followed; for all intents and purposes, title to the
     property was vested in the holder of the promissory note, and
     appellant no longer had an insurable interest in it.

5.   Insurance -- extinguished debt to holder of promissory note ended
     appellant's economic interest in property. --  Where the bid at the
     foreclosure sale by the holder of appellant's promissory note
     was equal to the entire amount of appellantþs debt, the debt
     to the holder of the promissory, upon confirmation of the
     sale, was fully extinguished; at that point, appellant no
     longer had an þactual, lawful, and substantial economic
     interest in the safety or preservation of the subject of the
     insurance ...þ as required by Ark. Code Ann.  23-79-104(b); 
     appellantþs voluntary undertaking by her supersedeas to
     þdeliver possession of the foreclosed property, and to pay all
     costs and damages for delay that may be adjudged against
     appellant on appeal ...þ could not be used to bootstrap
     herself into having an insurable interest in property that she
     no longer owned, upon which she owed nothing, that she did not
     rent, and of which she was in possession solely by virtue of
     the courtþs stay.

6.   Insurance -- holder of promissory note became owner of property and had
     insurable interest. -- When the sale to the holder of appellant's
     promissory note was confirmed and the commissionerþs deed
     delivered to it, the holder of the promissory note became the
     owner, and it had an insurable interest in the property.


     Appeal from Franklin Circuit Court, Northern District; John S.
Patterson, Judge; affirmed.
     Oscar Stilley, for appellant.
     Randall Templeton, for appellee.

     Sam Bird, Judge.
     Appellant Sharon Marion appeals the dismissal of her suit
against Town and Country Mutual Insurance Company and the granting
of Town and Country's motion for summary judgment.  We find no
error and affirm.
     Appellant purchased a home from Jim Walter Homes a/k/a Mid-
State Homes, Inc., and executed a promissory note to Mid-State
Trust IV (Mid-State) on December 28, 1992, secured by a mortgage to
Mid-State covering the purchased property.  A foreclosure
proceeding was commenced by Mid-State on September 29, 1995, that
resulted in a default judgment being entered against appellant on
December 14, 1995.  Appellant contested the default foreclosure
decree by motions challenging the validity of service of process,
but she did not appeal from the courtþs entry of the foreclosure
decree or the denial of her motions.  The foreclosure sale was held
on January 24, 1996, and the property was bought by Mid-State, the
lienholder, for the entire balance owed by appellant on the note,
including interest, costs, and fees.  The sale was confirmed by the
court on April 8, 1996, and a commissioner's deed conveying the
property to Mid-State was executed and filed the following day. 
Subsequently, appellant filed a notice of appeal and supersedeas,
and on April 25, 1996, the chancellor entered an order staying the
judgment pending the appeal from the order confirming the
commissioner's sale.
     In the meantime, on January 26, 1996, appellant applied for
homeowner's insurance from appellee, Town and Country Mutual
Insurance Company.  During the process of completing the
application for insurance, appellant failed to mention to the
insurance agent the pending foreclosure action or that Mid-State
had purchased the property at the foreclosure sale.  The structure
burned to the ground on July 22, 1996, as the result of an
accidental fire.  Appellant filed a claim and proof of loss with
appellee.  The claim was denied by appellee for two reasons:
material misrepresentation by appellant in the insurance
application for failure to disclose the foreclosure action, and 
appellantþs lack of an insurable interest in the property at the
time of the fire.  
     Appellant filed suit against appellee and filed a motion for
summary judgment.  Appellee filed a motion to dismiss and a motion
for summary judgment.  Mid-State filed a motion to intervene and
appellee responded in opposition to it.  
     No formal hearing was held, and all the issues were presented
to the court on the pleadings and briefs.  Appellant's motion for
summary judgment was denied.  Appellee's motions to dismiss and for
summary judgment were granted, without explanation.  Mid-State's
motion to intervene was not addressed.
     On appeal, appellant first argues that the trial court erred
in dismissing her complaint on the grounds that she had no
insurable interest in the property.  Insurable interest is defined
in Ark. Code Ann.  23-79-104 (Repl. 1992):
        (a) No contract of insurance of property or of any
     interest in property or arising from property shall be
     enforceable as to the insurance except for the benefit of
     persons having an insurable interest in the things
     insured at the time of the effectuation of the insurance
     and at the time of the loss.

        (b) "Insurable interest" as used in this section means
     any actual, lawful, and substantial economic interest in
     the safety or preservation of the subject of the
     insurance free from loss, destruction, or pecuniary
     damage or impairment.

Appellant contends that at the time she applied for the insurance,
she had an insurable interest in the property because she was
living in the home, and Mid-State had not yet received the
commissioner's deed.  She says that as soon as the sale was
confirmed by the court and the commissioner's deed was executed,
she filed a supersedeas, which she contends suspended the force and
effect of the foreclosure judgment.  Thus, she argues that because
she still had the right to possession and Mid-State could not get
a writ of assistance, she had an insurable interest at the time of
the fire.  Furthermore, she argues that she was bound by her bond
to pay all costs and damages if she were eventually successful in
the prosecution of her appeal from the foreclosure-sale
confirmation order.
     Arkansas Code Annotated section 23-79-104 requires that, for
the insurance policy to be enforceable, an insurable interest in
the insured property must exist both þat the time of the
effectuation of the insurance and at the time of the loss.þ  We do
not agree with appellant's argument that she had an insurable
interest in the property when the fire occurred on July 22, 1996.
     In Fleming v. Southland Life Ins. Co., 263 Ark. 272, 564 S.W.2d 216 (1978), an appeal involving a mortgage-foreclosure
action, our supreme court held that where the mortgagor has waived
his statutory right of redemption, a judicial sale is complete upon
confirmation of the sale, and the mortgagorþs right of redemption
terminates at that time (although it may be be terminated even
sooner if so specified in the foreclosure decree).
     In Adams v. Allstate Ins., 723 F. Supp. 111 (E.D. Ark. 1989),
a fire occurred after a foreclosure sale but before approval of the
sale by the state court.  The appellate court held that the
foreclosure did not affect appellant's interest in the property
because it was not yet final and that Adams retained an insurable
interest in the residence until the commissioner's sale was
approved by the state court.  Of course, Adams is factually
distinguishable from the case at bar because here the fire did not
occur until more than three months after the sale had been
confirmed and after the commissionerþs deed had been delivered to
Mid-State, the buyer at the foreclosure sale.
     The authority referred to above is controlling in this case.
The confirmation of the foreclosure sale and the delivery of a
commissionerþs deed to the buyer had the effect of terminating
appellantþs insurable interest in the property.  This holding is
also in accord with Jones v. Texas Pac. Indem. Co., 853 S.W.2d 791
(Tex. Ct. App. 1993), wherein the appellate court affirmed the
trial court's order granting appellee insurance company's summary-
judgment motion on the grounds that appellants, the former owners,
became "tenants at sufferance" following a mortgage foreclosure and
had no insurable interest in their dwelling at the time of the fire
because (1) they were subject to immediate eviction; (2) they had
no future legal interest in the dwelling; (3) they had diminished
motive to protect the property; (4) they did not suffer any
pecuniary loss; and (5) they did not receive any benefit from the
dwelling, even though they were still living there. 
     Also, we do not agree with appellant that the filing of a
notice of appeal and a supersedeas bond in the foreclosure action
had the effect of extending her insurable interest beyond the
confirmation of the foreclosure sale.  This argument disregards the
function and effect of the supersedeas.  As stated by this court in
Searcy Steel Co. v. Mercantile Bank of Jonesboro, 19 Ark. App. 220,
719 S.W.2d 277 (1986):
          The effect of a supersedeas on a judgment was
          discussed by our court as early as Fowler v.
          Scott, 11 Ark. 675 (1850), which declared that
          the function of a supersedeas is to stay the
          execution of the judgment pending the period
          it is superseded, but the validity of the
          judgment is not effected [sic] by the stay. It
          is merely a legal prohibition from execution
          on the judgment until that prohibition has
          been removed by operation of law or a judgment
          of the supreme court.  In Miller v. Nuckolls,
          76 Ark. 485, 89 S.W. 88 (1905), the court
          reaffirmed its declaration in Fowler and
          restated that the supersedeas does not have
          the effect of vacating the judgment but only
          stays proceedings to enforce it.

19 Ark. App. at 225, 719 S.W.2d  at 280.

     The position taken in Searcy Steel Co., supra, was reaffirmed
by this court in Everett v. Wingerter, 35 Ark. App. 139, 816 S.W.2d 613 (1991); see also Ryder Truck Rental, Inc. v. Sutton, 305 Ark. 
374, 807 S.W.2d 909 (1991).
     At the time appellant filed her supersedeas and obtained the
court order staying execution on the April 8, 1996, judgment, the
court had already confirmed the foreclosure sale, the
commissionerþs deed had been executed and delivered, and title had
passed to Mid-State.  The supersedeas and stay order were effective
only to prohibit further execution of the judgment by Mid-State and
did not have the effect of nullifying the courtþs confirmation of
the sale or the commissionerþs deed that followed.  For all intents
and purposes, title to the property was vested in Mid-State and
appellant no longer had an insurable interest therein.
     There is another reason appellant did not have an insurable
interest in the property at the time of the fire.  As stated above,
at the foreclosure sale, Mid-Stateþs bid for the property at the
foreclosure sale was equal to the entire amount of appellantþs debt
to it, including principal, interest, costs, and fees.  Upon
confirmation of the sale, appellantþs debt to Mid-State was thus
fully extinguished.  At that point, appellant no longer had an
þactual, lawful, and substantial economic interest in the safety or
preservation of the subject of the insurance ...þ as required by
Ark. Code Ann.  23-79-104(b).  Appellantþs voluntary undertaking
by her supersedeas to þdeliver possession of the foreclosed
property, and to pay all costs and damages for delay that may be
adjudged against appellant on appeal ...þ cannot be used to
bootstrap herself into having an insurable interest in property
that she no longer owned, upon which she owed nothing, that she did
not rent, and of which she was in possession solely by virtue of
the courtþs stay.
     Contrary to appellantþs argument, the determination that
appellant had no insurable interest in the property did not have
the effect of rendering the property þtotally uninsurable,þ nor did
it necessarily leave Mid-State with an þuninsured dwellingþ while
appellant prosecuted her appeal.  When the sale to Mid-State was
confirmed and the Commissionerþs deed delivered to it, Mid-State
became the owner and it had an insurable interest in the property.
     Because we find that appellant had no insurable interest in
the property at the time of the fire, it is unnecessary to reach
the other issues argued by appellant.
     Affirmed.
     Rogers and Roaf, JJ., agree.