Jones v. Wesbanco Bank
Annotate this Case
January 1995 Term
___________
No. 22517
___________
JOSEPH C. JONES AND DEBRA S. JONES,
Plaintiffs Below, Appellees
v.
WESBANCO BANK PARKERSBURG,
Intervening Plaintiff Below, Appellant
v.
MOTORISTS MUTUAL INSURANCE COMPANY,
Defendant Below, Appellee
___________________________________________________
Appeal from the Circuit Court of Wood County
Honorable George Hill, Judge
Civil Action No. 90-C-582
AFFIRMED, IN PART; REVERSED, IN PART;
AND REMANDED WITH DIRECTIONS
___________________________________________________
Submitted: May 3, 1995
Filed: July 14, 1995
Ronald W. Musser
Phillips, Gardill, Kaiser & Altmeyer
Wheeling, West Virginia
Attorney for the Appellant, Wesbanco Bank Parkersburg
Diana Everett
Ruley & Everett
Parkersburg, West Virginia
Attorney for the Appellee, Motorists Mutual
CHIEF JUSTICE McHUGH delivered the Opinion of the Court.
JUSTICE BROTHERTON AND JUSTICE RECHT did not participate.
RETIRED JUSTICE MILLER and JUSTICE CLECKLEY, deeming themselves
disqualified, did not participate.
JUDGE FOX, JUDGE SPAULDING and JUDGE RANSON sitting by temporary
assignment.
SYLLABUS BY THE COURT
1. "A circuit court's entry of summary judgment is
reviewed de novo." Syl. pt. 1, Painter v. Peavy, ___ W. Va. ___,
451 S.E.2d 755 (1994).
2. "'"A motion for summary judgment should be granted
only when it is clear that there is no genuine issue of fact to be
tried and inquiry concerning the facts is not desirable to clarify
the application of the law." Syllabus Point 3, Aetna Casualty &
Surety Co. v. Federal Insurance Co. of New York, 148 W. Va. 160,
133 S.E.2d 770 (1963).' Syllabus Point 1, Andrick v. Town of
Buckhannon, 187 W. Va. 706, 421 S.E.2d 247 (1992)." Syl. pt. 2,
Painter v. Peavy, ___ W. Va. ___, 451 S.E.2d 755 (1994).
3. "If a fire insurance contract between an insurer and
a property owner includes a standard mortgage clause naming as
mortgagee the lender under a deed of trust executed by the property
owner to secure a debt owing on the property, the lender under the
deed of trust pursuant to that clause has an independent and
distinct contract with the insurer, as if the lender under the deed
of trust had taken out a separate policy with the insurer, and is
deemed to be an insured to the extent of the balance due it from
the property owner." Syl. pt. 1, Firstbank Shinnston v. West
Virginia Insurance Co., 185 W. Va. 754, 408 S.E.2d 777 (1991).
4. Where the lender under a deed of trust executed by a
property owner to secure a debt owing on the property is named as
mortgagee in a standard mortgage clause in a fire insurance contract between an insurer and a property owner, it has an
independent and distinct contract with the insurer and is deemed to
be an insured to the extent of the balance due it from the property
owner. Thus, the right of the lender under a deed of trust named
as mortgagee to the insurance proceeds is determined at the time of
the fire loss to the extent of the balance due it from the property
owner.
5. "Whenever a policyholder substantially prevails in a
property damage suit against its insurer, the insurer is liable
for: (1) the insured's reasonable attorneys' fees in vindicating
its claim; (2) the insured's damages for net economic loss caused
by the delay in settlement, and damages for aggravation and
inconvenience." Syl. pt. 1, Hayseeds, Inc. v. State Farm Fire &
Cas., 177 W. Va. 323, 352 S.E.2d 73 (1986).
McHugh, Chief Justice:
In this appeal from the Circuit Court of Wood County,
West Virginia, appellant Wesbanco Bank Parkersburg (hereinafter
"Wesbanco") seeks a determination from this Court that, as the
named mortgagee on a certain homeowners insurance policy, it
suffered a loss as of the date of the fire that destroyed the
collateral real estate even though the mortgagors continued to make
monthly payments on the mortgage debt for approximately two years
and seven months after the date of the fire. Wesbanco further
appeals the circuit court's ruling that Wesbanco failed to
establish a prima facie case of bad faith against the insurer,
appellee Motorists Mutual Insurance Company.
This Court has before it the petition for appeal, all
matters of record and the briefs and argument of counsel. For the
reasons stated below, the order of the circuit court is affirmed,
in part, reversed, in part, and this case is remanded.
I.
On or about September 1, 1989, Joseph C. and Debra S.
Jones purchased a homeowners insurance policy from appellee
Motorists Mutual Insurance Company (hereinafter "Motorists
Mutual"). The insurance policy, which covered Mr. and Mrs. Jones'
residence as well as their personal property, listed Mountain State
Bank, now Wesbanco, as mortgagee.See footnote 1
On February 8, 1990, a fire occurred at Mr. and Mrs.
Jones' residence, causing substantial damage. Mr. and Mrs. Jones
subsequently sought to recover the full limits of the policy for
the following: $42,000 for the dwelling; $29,400 for personal
property; and $4,200 for other structures. Motorists Mutual denied
coverage for the loss pursuant to policy provisions found in
Section I -- Perils Insured Against, which state:
We insure against risks of direct loss to
property described in Coverages A [Dwelling]
and B [Other Structures] only if that loss is
a physical loss to property[.]
. . . .
We insure for direct physical loss to the
property described in Coverage C [Personal
Property] caused by a peril listed below
unless the loss is excluded in Section I --
Exclusions.
Section I -- Exclusions provides, in pertinent part:
1. We do not insure for loss caused
directly or indirectly by any of the
following. Such loss is excluded regardless
of any other cause or event contributing
concurrently or in any sequence to the loss.
. . . .
h. Intentional Loss, meaning any loss
arising out of any act committed;
(1) by or at the direction of an
insured; and
(2) with the intent to cause a loss.
Motorists Mutual thus denied coverage to Mr. and Mrs.
Jones based upon their alleged intentional acts in causing the
fire.
On May 30, 1990, Mr. and Mrs. Jones filed a complaint in
the Circuit Court of Wood County seeking recovery under the
aforementioned insurance policy. Mr. Jones was subsequently tried
and convicted of arson while Mrs. Jones was acquitted.
It was not until November of 1990, approximately nine
months after the fire, that Wesbanco learned that the property
securing the Jones' loan had been destroyed. In that Mr. and Mrs.
Jones, or someone on their behalf, had continued making the monthly
payments on the loan from and after the date of the fire, it is
unclear as to precisely how Wesbanco learned of the fire loss. In
any event, according to Wesbanco, it immediately contacted
Motorists Mututal's regional and home offices in an attempt to
collect payment under the mortgage clause of the policy, which
provides:
The word 'mortgagee' includes trustee.
If a mortgagee is named in this policy, any
loss payable under Coverage A or B will be
paid to the mortgagee and you, as interests
appear. If more than one mortgagee is named,
the order of payment will be the same as the
order of precedence of the mortgages.
If we deny your claim, that denial will not
apply to a valid claim of the mortgagee, if
the mortgagee:
a. notifies us of any change in
ownership, occupancy or substantial
change in risk of which the
mortgagee is aware;
b. pays any premium due under this
policy on demand if you have
neglected to pay the premium; and
c. submits a signed, sworn
statement of loss within 60 days
after receiving notice from us of
your failure to do so. Policy
conditions relating to Appraisal,
Suit Against Us and Loss Payment
apply to the mortgagee.
If the policy is cancelled or not renewed by
us, the mortgagee will be notified at least 10
days before the date cancellation or
nonrenewal takes effect.
If we pay the mortgagee for any loss and deny
payment to you:
a. we are subrogated to all the
rights of the mortgagee granted
under the mortgage on the property;
or
b. at our option, we may pay to the
mortgagee the whole principal on the
mortgage plus any accrued interest.
In this event, we will receive a
full assignment and transfer of the
mortgage and all securities held as
collateral to the mortgage debt.
Subrogation will not impair the right of the
mortgagee to recover the full amount of the
mortgagee's claim.
In April 1991, Wesbanco completed and returned to
Motorists Mutual a sworn proof of loss form. When Motorists Mutual
failed to adequately respond to its claim, Wesbanco, in July 1992,
filed a complaint as an intervening plaintiff in the aforementioned
civil action instituted by Mr. and Mrs. Jones. Wesbanco's complaint alleged (1) that it was owed payment under the insurance
policy from the date of the fire loss and (2) that Motorists Mutual
acted in bad faith in refusing to pay Wesbanco the sum to which it
was entitled under the policy.
In its answer to Wesbanco's complaint, Motorists Mutual
maintained, inter alia, that Wesbanco had sustained no loss as a
result of Motorists Mutual's refusal to pay under the insurance
policy in that the loan indebtedness owed to Wesbanco by Mr. and
Mrs. Jones had been timely discharged, even as of the date
Wesbanco's complaint was filed, since the date of the fire.
Wesbanco subsequently filed a motion for summary judgment
seeking, inter alia, payment under the insurance policy in the
amount of the debt owed to it by Mr. and Mrs. Jones as of the date
of the fire. In its response to Wesbanco's motion for summary
judgment, Motorists Mutual again argued that Wesbanco had sustained
no loss, considering the debt had continued to be timely
discharged. In its supplemental response to Wesbanco's motion for
summary judgment, Motorists Mutual asserted, for the first time,
that the insurance policy at issue contained a loss payable, or
open mortgage clause, which precluded Wesbanco from recovering
thereunder due to the misconduct of the insured, Mr. Jones, who had
previously been convicted of arson.
Following a hearing on March 24, 1993, Wesbanco's motion
for summary judgment was denied. The circuit court ruled, in an
order dated April 19, 1993, that the insurance policy at issue
contained an open mortgage clause, "and further that the subject policy specifically excludes any loss caused by the intentional
conduct of an insured, which renders the mortgage clause
inapplicable under its express provisions[.]"See footnote 2
Wesbanco subsequently requested that the circuit court
reconsider its order denying its motion for summary judgment.
Wesbanco's request was denied.
On October 8, 1993, Motorists Mutual filed a motion for
summary judgment against both Mr. and Mrs. Jones and Wesbanco. In
a letter to the parties, the judge indicated that, upon review of
Wesbanco's response to Motorists Mutual's motion for summary
judgment, he had concluded that, notwithstanding the arson
conviction of Mr. Jones, Motorists Mutual was obligated to Wesbanco
in that the insurance policy at issue was "obviously intended to
have the same effect . . . [as] a 'standard mortgage clause.'"See footnote 3 By order dated October 27, 1993, the circuit court granted Motorists
Mutual's motion for summary judgment as to Mr. and Mrs. Jones, at
which time, approximately two years and seven months after the date
of the fire, Mr. and Mrs. Jones ceased making the monthly loan
payments to Wesbanco. The October 27, 1993 order further directed
that the case remain upon the docket pending resolution of
Wesbanco's claims.
On November 16, 1993, Wesbanco renewed its motion for
summary judgment. By order dated March 1, 1994, the circuit court,
inter alia, required Motorists Mutual to pay to Wesbanco "an amount
equal to the current unpaid principal of the loan at issue,
together with accrued but unpaid interest, said sum to be
established by an affidavit to be submitted by [Wesbanco]."See footnote 4
(footnote added). The court further found that considering
that the lien of [Wesbanco] continued to be
discharged by [Mr. and Mrs. Jones] subsequent
to the loss alleged in the Complaint, that
said payments remained current during the
pendency of the action, that the Intervening
Complaint was filed, pursued and prosecuted at
a time when such payments to [Wesbanco]
remained current, and that this Court, by
Order entered April 20, 1993, had denied [Wesbanco's] Motion for Summary Judgment
against [Motorists Mutual,]
Wesbanco failed to establish a prima facie case of bad faith
against Motorists Mutual, as alleged in Count II of the complaint.
It is from the circuit court's March 1, 1994 order that
Wesbanco now appeals.
II.
In syllabus points one and two of Painter v. Peavy, ___
W. Va. ___, 451 S.E.2d 755 (1994), this Court held:
1. A circuit court's entry of summary
judgment is reviewed de novo.
2. '"A motion for summary judgment
should be granted only when it is clear that
there is no genuine issue of fact to be tried
and inquiry concerning the facts is not
desirable to clarify the application of the
law." Syllabus Point 3, Aetna Casualty &
Surety Co. v. Federal Insurance Co. of New
York, 148 W. Va. 160, 133 S.E.2d 770 (1963).'
Syllabus Point 1, Andrick v. Town of
Buckhannon, 187 W. Va. 706, 421 S.E.2d 247
(1992).
Our de novo review of the circuit court's disposition of this case
on summary judgment reveals that there was no genuine issue of fact
to be tried nor was an inquiry into the facts desirable to clarify
application of the law. Accordingly, though summary judgment was
appropriate in this case, it was improperly granted in favor of
Motorists Mutual.
III.
The first issue on appeal is whether Wesbanco, the lender
under a deed of trust named as mortgagee on the homeowner's
insurance policy, suffered a loss under the express terms of the policy as of the date of the fire even though the insureds, or
someone on their behalf, continued to make monthly loan payments to
Wesbanco for approximately two years and seven months after the
date of the fire. It is Motorists Mutual's contention, and the
circuit court agreed, that Wesbanco suffered no loss until the date
Mr. and Mrs. Jones ceased making payments on the loan.
Our analysis begins with our determination of whether the
insurance policy purchased by Mr. and Mrs. Jones contained a
standard mortgage clause or an open mortgage clause. In light of
the misconduct of the insureds, our resolution of this threshold
issue is significant, as it will determine if Wesbanco, as the
lender under a deed of trust named as mortgagee on the policy, was
entitled to payment of the insurance proceeds at all.
Under a New York standard or union mortgage clause,
"there are two separate and distinct contracts of insurance created
. . . one with the owner of the property and one with the
mortgagee." Firstbank Shinnston v. West Virginia Insurance Co.,
185 W. Va. 754, 759, 408 S.E.2d 777, 782 (1991). (citations
omitted). The "mortgagee has an independent contract with the
insurer which can not be defeated by improper or negligent acts of
the mortgagor." 5 George J. Couch, et al., Couch on Insurance 2d
§ 29:65 (1984) (footnote omitted). See Firstbank Shinnston, supra;
Valley National Bank of Arizona v. Insurance Company of North
America, 836 P.2d 425 (Ariz. Ct. App. 1992); Pacific Insurance
Company of New York v. R.L. Kimsey Cotton Co., Inc., 151 S.E.2d 541
(Ga. Ct. App. 1966); Grange Mutual Casualty Co. v. Central Trust Co., 774 S.W.2d 838 (Ky. Ct. App. 1989); Talman Federal Savings &
Loan Ass'n v. American States Insurance Co., 468 So. 2d 868 (Miss.
1985). The standard mortgage clause affords the mortgagee "the
same protection as if it had taken out a separate policy."
Firstbank Shinnston, 185 W. Va. at 759, 408 S.E.2d at 782
(citations omitted).
In distinct contrast, under an open mortgage, or loss
payable clause, the mortgagee's rights are totally derivative of
the mortgagor's. Thus, such clause does not "operate as a separate
contract between the mortgagee and the [insurance] company; but the
policy remains one between the company and the owner, with a right
of collection vested in the mortgagee by appointment." 5A John
Alan Appleman and Jean Appleman, Insurance Law and Practice § 3401
at p. 285 (1970) (footnote omitted). Unlike the designated
mortgagee in a standard mortgage clause, the mortgagee in an open
mortgage clause is:
'[A] mere appointee to receive the proceeds to
the extent of his interest . . . dependent
upon the existence of an insurable interest in
such appointee . . . it makes the policy
subject to any act or omission of the insured
which might void, terminate, or adversely
affect the coverage; and if the policy is not
collectible by the insured, the appointee,
likewise, cannot recover thereunder.'
Valley National Bank of Arizona v. Insurance Co. of North America,
836 P.2d 425, 428 (Ariz. Ct. App. 1992) (citing 5A Appleman, supra
at § 3335). Significantly, a clause is construed to be an open
mortgage clause "where it directs the insurer to pay the proceeds
of the policy to the named payee 'as his interest may appear' and contains no other provision protecting the payee's rights against
breach of the insurance contract by the insured." St. Louis County
National Bank v. Maryland Casualty Co., 564 S.W.2d 920, 928 (Mo.
Ct. App. 1978) (citation omitted and emphasis added). Moreover,
while the mortgagee is the named payee of the proceeds, "there are
no other provisions in his favor." Id. (citations omitted and
emphasis added).See footnote 5
Considering the aforementioned principles and the fact
that our legislature has prescribed "the New York Standard as an
exclusive form of fire insurance policy to be used in this State,"
Kirk v. Fireman's Insurance Co. of Newark, N.J., 107 W. Va. 666,
668, 150 S.E. 2 (1929), we conclude that the mortgage clause in the
Jones' policy is a standard mortgage clause.See footnote 6 See Meadows v. Employers' Fire Insurance Co., 171 W. Va. 337, 298 S.E.2d 874
(1982). W. Va. Code, 33-17-2 [1957] provides, in relevant part,
that
[n]o policy of fire insurance covering
property located in West Virginia shall be
made, issued or delivered unless it conforms
as to all provisions and the sequence thereof
with the basic policy commonly known as the
New York standard fire policy, edition of one
thousand nine hundred forty-three, which is
designated as the West Virginia standard fire
policy; except that with regard to multiple
line coverages providing casualty insurance
combined with fire insurance this section
shall not apply if the policy contains, with
respect to the fire portion thereof, language
at least as favorable to the insured as the
applicable portions of the standard fire
policy and such multiple line policy has been
approved by the commissioner.
Lines 68 through 85 of the New York Standard Fire Policy
(statutorily designated the West Virginia Standard Fire Policy)
provide:
Mortgagee Interests and Obligations
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.
If the insured fails to render proof of
loss such mortgagee, upon notice, shall render
proof of loss in the form herein specified
within sixty (60) days thereafter and shall be
subject to the provisions hereof relating to
appraisal and time of payment and of bringing
suit. If this Company shall claim that no
liability existed as to the mortgagor or
owner, it shall, to the extent of payment of
loss to the mortgagee, be subrogated to all
the mortgagee's rights of recovery, but
without impairing mortgagee's right to sue; or it may pay off the mortgage debt and require
an assignment thereof and of the mortgage.
Other provisions relating to the interests and
obligations of such mortgage may be added
hereto by agreement in writing.
(emphasis added).
Under the basic standard mortgage language cited above,
the rights of a lender under a deed of trust of property located in
West Virginia which is named as mortgagee in a policy of fire
insurance are independent of the insured's claim under the policy
and is not defeated by the insured's conduct. See Northwestern
National Casualty Co. v. Khosa, Inc., 520 N.W.2d 771, 774 (Minn.
Ct. App. 1994) ("If . . . no liability existed as to the mortgagor
. . . to the extent of payment of loss to the mortgagee [.]"). The
mortgage clause in the Jones' policy clearly adheres to the
mandates of W. Va. Code, 33-17-2 [1957] and the corresponding
requirements of the New York Standard Fire Policy adopted in West
Virginia.
The mortgage clause at issue states, in pertinent part,
that if Motorists Mutual "den[ies] [the insureds'] claim, that
denial will not apply to a valid claim of the mortgagee, if the
mortgagee" fulfills three requirements specifically set forth in
that provision. The mortgage clause further imposes upon Motorists
Mutual certain obligations if it "pay[s] the mortgagee for any loss
and den[ies] payment to [the insureds] [.]" This policy language
clearly indicates that Wesbanco's rights thereunder are not
dependent upon the insureds' right to recover. Thus, despite Mr.
Jones' conviction of arson, which precluded recovery under the policy, Wesbanco's rights, as the lender under a deed of trust
named as mortgagee, are not disturbed.See footnote 7
IV.
Having concluded that the mortgage clause in this case is
a standard mortgage clause,See footnote 8 we must now determine whether Wesbanco
was entitled to the policy proceeds as of the date of the fire even
though monthly payments on the loan were timely discharged from and
after the date of the fire. For the reasons discussed herein, we
conclude that Wesbanco was entitled to payment of the insurance
proceeds as of the date of the fire.
As indicated in syllabus point one of Firstbank
Shinnston, supra, under a standard mortgage clause, the lender
under a deed of trust named as mortgagee is entitled to insurance
proceeds to the extent that they are equal to the debt owed by the
property owner:
If a fire insurance contract between an
insurer and a property owner includes a
standard mortgage clause naming as mortgagee the lender under a deed of trust executed by
the property owner to secure a debt owing on
the property, the lender under the deed of
trust pursuant to that clause has an
independent and distinct contract with the
insurer, as if the lender under the deed of
trust had taken out a separate policy with the
insurer, and is deemed to be an insured to the
extent of the balance due it from the property
owner.
See Brown v. Frankenmuth Mutual Insurance Co., 468 N.W.2d 243, 247
(Mich. Ct. App. 1991). Indeed, the purpose of a standard mortgage
clause in an insurance policy "is to indemnify the mortgagee
against the diminution of the value of the security for his loan
due to loss from certain perils and thereby to make certain that in
the event of such a loss, the mortgagee would be protected up to
the amount of his lien." Citizens Savings and Loan Ass'n of New
York v. Proprietors Insurance Co., 435 N.Y.S.2d 303, 306 (N.Y. App.
Div. 1981) (citation omitted). See Lutheran Brotherhood v. Hooten,
237 So. 2d 23, 24 (Fla. Dist. Ct. App. 1970) ("The reason that
mortgagees require mortgagors to obtain insurance on the mortgaged
premises is to provide additional security for the debt.")
Under a standard mortgage clause, the right of a lender
under a deed of trust named as mortgagee to the insurance proceeds
becomes vested at the time of the fire damage to the extent of the
balance due on the debt. Federal National Mortgage Ass'n v.
Prudential Property and Casualty Ins. Co., 517 So. 2d 201, 206 (La.
Ct. App. 1987). See Rosenbaum v. Funcannon, 308 F.2d 680 (9th Cir.
1962); Norfolk & Dedham Mutual Fire Ins. Co. v. Schlehuber, 327 So. 2d 891 (Fla. Dist. Ct. App. 1976); Georgia Farm Bureau Mutual
Insurance Co. v. Brewer, 413 S.E.2d 770 (Ga. Ct. App. 1991). In the syllabus of Pacific Insurance Company of New York v. R.L.
Kimsey Cotton Co., Inc., 151 S.E.2d 541 (Ga. Ct. App. 1966), the
Georgia Court of Appeals held that "[u]nder a New York Standard
mortgage clause in a fire insurance contract, the liability of the
insurer to a mortgagee loss payee is to be determined by the rights
of the mortgagee at the time of the fire."
In Grange Mutual Casualty Co. v. Central Trust Co., N.A.,
774 S.W.2d 838 (Ky. Ct. App. 1989), after fire damaged the
mortgaged premises, the insurance company denied the mortgagors'
claim for fire insurance proceeds because the fire had been
intentionally caused by one of the mortgagors. Though the named
mortgagee on the policy had timely filed a proof of loss claim with
the insurance company, its claim was denied for the reason that, by
the time the insurance company had completed its investigation of
the fire loss, the mortgagor had rebuilt the premises to the
condition as it existed prior to the fire.
Recognizing that a standard mortgage clause "operates as
a distinctive and separate contract between the insurer and the
mortgagee[,]" Id. at 839 (citations omitted), the court in Grange
Mutual reasoned that
[t]he right of the mortgagee under a standard
mortgage clause is not dependent upon his
sustaining loss. That is, the mortgagee under
such a clause acquires a right to the
insurance proceeds even though he suffers no
actual loss, as when the building was restored
to its former condition by the mortgagor.
Couch on Insurance, 2d (Red. ed.) § 42:730.
The bank had an insurable interest in the
property and the insurance company agreed to
insure it against a loss by fire, and a loss
occurred. The contingency contemplated by the contract has, therefore, arisen (on the date
of the fire loss) and the company is bound to
pay the amount of the damage. . . . The time
of the fire and of the loss established the
rights of the parties and the amount of the
loss payable to the mortgagee became fixed as
of that time.
Id. at 846 (emphasis added). See Savarese v. Ohio Farmers'
Insurance Co. of LeRoy, Ohio, 182 N.E. 665 (N.Y. 1932).
Similarly, in Talman Federal Savings & Loan Ass'n v.
American States Insurance Co., 468 So. 2d 868 (Miss. 1985), wherein
the insurance company argued that the mortgagee had not suffered a
"loss" because the insured rebuilt the destroyed property a year
later, the court found the "loss" envisioned in the insurance
policy is the date of the event on which the claim is made. Id. at
874. The "loss" was to be neither determined nor affected by
events, such as the rebuilding of the premises, transpiring over a
year after the fire. Id.
In Lutheran Brotherhood, 237 So. 2d 23, a mortgagee both
foreclosed and obtained a deficiency judgment against the
mortgagors after fire destroyed the secured property. The court
found that the mortgagee's right to recover under the fire
insurance policy became fixed at the time of loss and that,
significantly, "[t]his right could not be lost until the entire
debt was satisfied in full." Id. at 24 (emphasis added and citation
omitted). See Rosenbaum v. Funcannon, 308 F.2d 680, 684 (9th Cir.
1962) ("Only to the extent that the mortgagee receives payment upon
the debt through the foreclosure is the debt itself
extinguished.").
We recognize the facts in the aforementioned cases to be
distinguishable from the unique element which exists in the case
before us, that is, the continued payment to Wesbanco on the loan
following destruction of the secured premises. Nevertheless, we
find their reasoning to be persuasive.
Wesbanco's right to recover under the insurance policy
became fixed at the time of the fire. This right could not be lost
until the entire debt was satisfied in full. Accordingly, the
continued monthly payment on the debt did not bar Wesbanco from
collecting the entire debt owed it, as of the date of the fire,
because it was only the satisfaction of the entire debt which would
have precluded Wesbanco's claim to the insurance proceeds.
The record reveals that Wesbanco did not learn of the
February 8, 1990 fire until November 1990. During that seven-month
period, monthly payments on the loan were made thereby
extinguishing part of the debt. Under the insurance policy,
Wesbanco was entitled to the balance of the debt, as of the date of
the fire, less that amount paid by or on behalf of Mr. and Mrs.
Jones from and after the date of the fire.See footnote 9
Accordingly, we hold that where the lender under a deed
of trust executed by a property owner to secure a debt owing on the
property is named as mortgagee in a standard mortgage clause in a
fire insurance contract between an insurer and a property owner, it
has an independent and distinct contract with the insurer and is
deemed to be an insured to the extent of the balance due it from
the property owner. Thus, the right of the lender under a deed of
trust named as mortgagee to the insurance proceeds is determined at
the time of the fire loss to the extent of the balance due it from
the property owner.
V.
The final issue raised by Wesbanco on appeal is that the
circuit court erred in denying its bad faith claim against
Motorists Mutual for its refusal to pay to Wesbanco the fire
insurance proceeds and to satisfy the mortgage debt as of the date
of the fire. Considering our resolution of the first assignment of
error, we agree with Wesbanco's contention insofar as the circuit
court's ruling denied its claim for reasonable attorneys' fees.
In syllabus point one of Hayseeds, Inc. v. State Farm
Fire & Cas., 177 W. Va. 323, 352 S.E.2d 73 (1986), we held that an
insured who substantially prevails in a suit against its insurer is
entitled to reasonable attorneys' fees:
Whenever a policyholder substantially
prevails in a property damage suit against its
insurer, the insurer is liable for: (1) the
insured's reasonable attorneys' fees in
vindicating its claim; (2) the insured's
damages for net economic loss caused by the
delay in settlement, and damages for
aggravation and inconvenience.
See syl. pt. 3, Firstbank Shinnston, supra. See also Hadorn v.
Shea, ___ W. Va. ___, 456 S.E.2d 194 (1995). This holding in
Hayseeds was substantially based upon the premise that whether an
insurer's refusal to pay an insured's claim was in good faith or
bad faith is of little relevance "'once it has been established
that the insurer breached its contract with its insured.'"
Hayseeds, Inc., 177 W. Va. at 329, 352 S.E.2d at 79 (quoting Aetna
Casualty & Surety Co. v. Pitrolo, 176 W.Va. 190, 194-95, 342 S.E.2d 156, 160 (1986)).
In Firstbank Shinnston, 185 W. Va. at 762, 408 S.E.2d at
785, we found the aforementioned reasoning equally applicable to a
lender under a deed of trust named as mortgagee under a standard
mortgage clause, considering that there is an independent contract
of insurance which exists between it and the insurer. Thus, in
that Wesbanco is deemed an insured to the extent of the balance due
it from Motorists Mutual, it should be compensated for the costs it
incurred in compelling Motorists Mutual to honor its contractual
obligation. Id.
Having concluded that Wesbanco was entitled to the fire
insurance proceeds as of the date of the fire, we hold that it has
substantially prevailed in its suit against Motorists Mutual.
Wesbanco is, therefore, entitled to recover its reasonable
attorneys' fees which are to be determined, on remand, by the
circuit court.
VI.
For reasons discussed herein, we hereby affirm the order
of the Circuit Court of Wood County insofar as it found the
mortgage clause in the Jones' fire insurance policy to be a
standard mortgage clause. However, we reverse that portion of the
circuit court's order which found that Wesbanco was entitled to
payment under the insurance policy as of the date payments on the
loan ceased and further, we reverse the circuit court's denial of
Wesbanco's claim for reasonable attorneys' fees. This case is
therefore remanded for determination of reasonable attorneys' fees
incurred by Wesbanco.
Affirmed, in part;
reversed, in part;
and remanded with
directions.
Footnote: 1
Though Wesbanco was listed on the policy as a
mortgagee, it was actually the lender for which a deed of trust
was executed to secure payment of the loan. Firstbank Shinnston
v. West Virginia Insurance Co., 185 W. Va. 754, 758, 408 S.E.2d
777, 781 (1991). However, we have previously stated that "a deed
of trust is in effect a mortgage, the primary difference being
the manner in which it is foreclosed." Id. See Young v. Sodaro,
___ W. Va. ___, 456 S.E.2d 31 (1995).Footnote: 2
This case was originally heard by the Honorable Arthur
N. Gustke. Upon Judge Gustke's retirement, the Honorable George
W. Hill became the presiding judge. According to a March 26,
1993 letter written to the parties by Judge Hill, certain
documents written by the parties had not been available to him at
the March 24, 1993 hearing on Wesbanco's motion for summary
judgment. Though Judge Hill had indicated at the March 24
hearing that he would grant Wesbanco's motion for summary
judgment, his March 26, 1993 letter, apparently written upon
review of these documents, stated otherwise. Indeed, by order of
April 19, 1993, Wesbanco's motion was denied.Footnote: 3
In the October 22, 1993 letter, the circuit court
judge determined that
while the language of the subject insurance
policy is not precisely the same as that
considered by the court in . . . Firstbank
Shinnston [v. West Virginia Insurance Co.,
185 W. Va. 794, 408 S.E.2d 777 (1991)] and
Fayetteville Building and Loan [Ass'n v.
Mutual Fire Ins. Co. of West Virginia, 105
W. Va. 147, 141 S.E. 634 (1928] . . . it is
substantially the same and is obviously
intended to have the same effect, thereby
creating a 'standard mortgage clause.'
Footnote: 4
Prior to entry of this order, a check in the amount of
$11,604.91 was tendered from Motorists Mutual to Wesbanco in
satisfaction of the unpaid principal of the loan, plus interest,
from October 31, 1993, the date Mr. and Mrs. Jones ceased making
payments thereon.Footnote: 5
In the cases of Wunschel v. Transcontinental Insurance
Co., 839 P.2d 64, 65 (Kan. Ct. App. 1992) and Northwestern
National Casualty Co. v. Khosa, Inc., 520 N.W.2d 771, 773 (Minn.
Ct. App. 1994), for instance, the following insurance policy
provisions were deemed open mortgage clauses:
A. Loss Payable
For Covered Property in which both you
and a Loss Payee shown in the Schedule or in
the Declarations have an insurable interest,
we will:
1. Adjust loss with you; and
2. Pay any claim for loss or damage
jointly to you and the Loss Payee, as
interests may appear.
Footnote: 6
See 5 Couch, supra at § 29:67 at 347 ("where a statute
provides that fire policies shall contain a standard New York
mortgage clause, fire policies are regarded as containing such
clause and the rights of the mortgagee are fixed accordingly[.]")Footnote: 7
Contained in the record in this case are documents
entitled the Fire Casualty and Surety Bulletin published by the
National Underwriter Company. These documents were attached as
exhibits to Wesbanco's October 8, 1993 memorandum in opposition
to Motorists Mutual's motion for summary judgment against it and
Mr. and Mrs. Jones. Significantly, the bulletin's discussion of
the standard mortgage clause included policy language identical
to that which is contained in the mortgage clause in the Jones'
policy. Such language is obviously considered in the insurance
industry to be a standard mortgage clause. The circuit court was
apparently persuaded by this evidence, as are we.Footnote: 8
Our conclusion that the mortgage clause in question is
a standard mortgage clause resolves Motorists Mutual's contention
in its cross-assignment of error that it is an open mortgage
clause.Footnote: 9
Contrary to the assertions of Motorists Mutual, the
record reveals that Wesbanco has never attempted a double
recovery of the debt owed it, but has maintained that it was
entitled only to the balance of the loan, including interest.
Indeed, the sum ultimately paid to Wesbanco once the monthly loan
payments ceased in October 1993 was the balance of the debt as of
that date. Thus, considering that the debt owed to Wesbanco had
been satisfied, our holding that it was entitled to the fire
insurance proceeds as of the date of the fire is significant to
Wesbanco insofar as it is also entitled to reasonable attorneys'
fees. See discussion, infra.
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