The National Bank of Cambridge, Plaintiff-appellant, v. Pennsylvania National Mutual Insurance Company; North Eastmutual Insurance Company, Defendants-appellees, v. Insurance, Inc., Third Party Defendant, 894 F.2d 402 (4th Cir. 1990)

This case comes to us on appeal from the district court's grant of defendants' motions for summary judgment. Because we find no error in the orders of the district court, we affirm.

Plaintiff National Bank of Cambridge (National) was a mortgagee of uninsured property which was destroyed by fire. National filed a claim against Pennsylvania National Mutual Casualty Insurance Company (Penn National) charging breach of a duty to notify plaintiff of the cancellation or non-renewal of an insurance policy. National also filed a claim against North East Insurance Company (North East) charging negligent cancellation of an insurance policy and breach of a third party beneficiary contract, and asserting a claim as an equitable lienholder. North East filed a third party complaint against Insurance, Inc.

On October 30, 1984, National took a mortgage on commercial property located in Cambridge, Maryland, from Marcel G. Talbot and Diane Fyfe. On December 6, 1984, National took a second mortgage on the same property. Each mortgage required Talbot and Fyfe to maintain insurance on the property in at least the amount of its insurable value and required that National be listed in the policy as a mortgagee or loss payee.

On October 30, 1984, Penn National issued a one-year policy to Talbot and Fyfe effective through October 30, 1985. The policy listed National as mortgagee, and was issued subject to Penn National's inspection of the property. After an inspection Penn National decided to cancel the policy. On June 24, 1985, Penn National mailed a cancellation notice effective August 13, 1985 to Talbot and Fyfe, and either a copy or second notice to National. Talbot and Fyfe received the notice. National denies receiving either this notice or notice of non-renewal from Penn National.

Talbot and Fyfe, through third party defendant Insurance, Inc. and insurance broker L.E. Harris, obtained six additional policies insuring the property. These policies were to be financed through Afco Credit Corporation (Afco) but, due to an error, the policy with North East was not placed on the Afco Financing Agreement. National was not listed as mortgagee on the North East policy, and this policy expressly indicated that there was no mortgagee to whom any loss would be payable; the word "NONE" was typed under the section entitled "Mortgage Clause."

The Afco financing agreement signed by Talbot and Fyfe gave Afco the authority to cancel the policies for non-payment of premiums. Insurance, Inc. paid the premium for the North East policy for one year. Talbot and Fyfe entered into an agreement to repay Insurance, Inc. but from August 1985 until February 1986 Talbot and Fyfe ignored repeated requests for payment from Insurance, Inc. Since Talbot and Fyfe never made a payment, Insurance, Inc. did not deliver the policy to them. In February 1986 Insurance, Inc. surrendered the policy to North East due to the nonpayment of premiums by Talbot and Fyfe.

On February 14, 1986, Afco sent a notice of cancellation to Insurance, Inc. on the five Afco financed policies because of non-payment of premiums. No notice of default or cancellation was sent to National. The five Afco policies were cancelled as of February 20, 1986, by surrender of the policies.

On July 3, 1986, the improvements on the mortgaged property were totally destroyed by fire. Both Penn National and North East denied National's claims because the policies had been cancelled prior to the date of the fire.

Plaintiff first asserts that the Penn National policy was not effectively cancelled, because National did not receive notice of cancellation. Penn National produced a United States Post Office certificate of mailing to the bank of the cancellation notice, but National denied receipt.

Assuming inadequate notice of cancellation for purposes of summary judgment, the issue of whether there was adequate notice of cancellation becomes immaterial if the Penn National policy expired according to its terms on October 30, 1985, nine months before the fire. Inadequate notice of cancellation could sustain a claim only for a loss which occurred during the period after the attempted cancellation but prior to the expiration of the policy. It would not sustain the instant claim of a post-expiration loss.

Recognizing this, National claims that it was entitled to notice of non-renewal at the time of the policy's expiration. National asserts that it was entitled to such notice pursuant to Md.Ann.Code Art. 48A Sec. 240 (1957), which requires that notice of non-renewal be "sent to the insured." However, the district court correctly concluded that because the statute contains no express provision requiring notice to a mortgagee, and because the policy itself provides only for notice of cancellation to mortgagees, no notice of non-renewal need have been sent to National.

The district court found that the North East policy was effectively cancelled by Insurance, Inc. upon surrender of the policy to North East. Although National argues that the policy was in effect because of payment of the premium by Insurance, Inc., whether Talbot and Fyfe could have recovered prior to the cancellation of the policy is not at issue. Instead, the issue is whether Insurance, Inc. retained the authority to cancel the policy. It is clear that Insurance, Inc. never delivered the policy to Talbot and Fyfe because they failed to pay any part of the premium. National's argument that Insurance, Inc. did not retain the authority to cancel the policy is not persuasive.

As noted by the district court:

The authority of an agent or broker specially employed to procure insurance terminates with the procurement and delivery of the policy and in the absence of additional authorization, real or apparent, he has no authority to cancel the policy at a later date.

3 Couch on Insurance 2d Sec. 25:16 at 293 (1984) (emphasis supplied). Moreover, " [a]n insured will be deemed to have consented to cancellation of a policy if he fails to pay the premium after notice from his general agent that he will cancel the policy if the premium is not paid." Id. Sec. 25:17 at 299. Therefore, the lower court was correct in concluding that Insurance, inc. had the authority to cancel the policy after its repeated demands for payment were ignored.

National also claims an interest in the insurance as a third party beneficiary. To recover as a third party beneficiary, National must show that the parties clearly intended to recognize it as such. See Marlboro Shirt Co. v. American District Telegraph Co., 196 Md. 565, 77 A.2d 776 (1951). In this case, the express language of the policy stated "None" under the mortgagee name, and neither North East's authorized agent nor North East itself was actually aware of National's mortgagee status. This suggests that the district court was correct in concluding that National is not a third party beneficiary, but we find it unnecessary to reach this argument since the policy was effectively cancelled prior to the fire. The valid cancellation of the policy prior to the loss bars National from recovering under any theory.¹ 

The district court did not err in granting the motions for summary judgment on the ground that neither the Penn National policy nor the North East policy was in effect at the time of the fire, and the decision of the district court is affirmed.

AFFIRMED.