J.C. Wyckoff & Associates v. Standard Fire Ins. Co.

• Decision Date: 02 August 1991
• Docket Number: 89-1822 and 89-1823,Nos. 89-1773,s. 89-1773
• Parties: J.C. WYCKOFF & ASSOCIATES, INC., Plaintiff-Appellant (89-1773)/Cross-Appellee, Second National Bank of Saginaw, Intervening Plaintiff-Appellee (89-1822), Ann Arbor Leasing, Inc., Intervening Plaintiff, v. The STANDARD FIRE INSURANCE COMPANY, Defendant-Appellee/ Cross-Appellant (89-1823) and Appellant (89-1822).
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1474

936 F.2d 1474

J.C. WYCKOFF & ASSOCIATES, INC., Plaintiff-Appellant

(89-1773)/Cross-Appellee,

Second National Bank of Saginaw, Intervening Plaintiff-Appellee (89-1822), Ann Arbor Leasing, Inc., Intervening Plaintiff, v. The STANDARD FIRE INSURANCE COMPANY, Defendant-Appellee/

Cross-Appellant (89-1823) and

Appellant (89-1822).

Nos. 89-1773, 89-1822 and 89-1823.

United States Court of Appeals, Sixth Circuit.

Argued March 27, 1991.

Decided June 20, 1991.

Rehearing and Rehearing En Banc

Denied Aug. 2, 1991.

Roland J. Jersevic, Crane & Crane, and Timothy R. McLeod, and Susan J. Tarrant, Polasky, Meisel, Rosenbaum & McLeod, Saginaw, Mich., for J.C. Wyckoff & Associates, Inc.

Susan M. Cook (argued) and David L. Powers, Lambert, Leser, Dahm, Giunta, Cook & Schmidt, Bay City, Mich., for Second Nat. Bank of Saginaw, a Nat. Banking Ass'n.

Michael V. Marston, Rice, Rice, Gilbert & Marston, Detroit, Mich., for Ann Arbor Leasing, Inc. Charles Tuffley (argued), Daryl G.

Fryxell, Denenberg, Tuffley, Bocan, Jamieson, Black, Hopkins & Ewald, and Judith A. Friday, Southfield, Mich., for the Standard Fire Ins. Co.

Before MARTIN and GUY, Circuit Judges; and EDWARDS, Senior Circuit Judge.

RALPH B. GUY, Jr., Circuit Judge.

Plaintiff, J.C. Wyckoff & Associates, Inc. (Wyckoff), commenced this suit in order to recover proceeds under a fire insurance policy issued by defendant, The Standard Fire Insurance Company (Standard Fire). ¹ The policy named intervening plaintiff, Second National Bank of Saginaw (the Bank), a lender of money to Wyckoff, under a loss payable clause. Standard Fire refused to pay proceeds to either the Bank or Wyckoff, claiming that Wyckoff committed arson and fraud and false swearing, thus barring recovery under the policy by either the Bank or Wyckoff. Standard Fire maintained that, because the Bank was named under a loss payable endorsement rather than a standard mortgage endorsement, the Bank's right to recover was contingent upon Wyckoff's right to recover. After a trial on the issue of Standard Fire's liability to Wyckoff, the jury rendered a verdict against Standard Fire on the arson defense and in favor of Standard Fire on the fraud and false swearing defense. Upon cross motions for summary judgment filed by the Bank and Standard Fire, the district court held that the jury verdict did not bar recovery by the Bank for outstanding loans made to Wyckoff and secured by real estate and personal property covered under the policy. The Bank's claim regarding the amount of judgment was subsequently resolved pursuant to a stipulation entered into between the Bank and Standard Fire. ²

Wyckoff raises numerous claims of error on appeal: (1) the trial court erred in denying Wyckoff's motions for directed verdict and judgment notwithstanding the verdict, as proof of reliance is required to sustain a claim of fraud and false swearing in Michigan, and Standard Fire admits that there was no reliance; (2) the issue of whether reliance is a necessary element of fraud and false swearing should have been certified for decision to the Michigan Supreme Court; (3) even assuming that proof of reliance is not required, the district court should have granted plaintiff's motion for judgment notwithstanding the verdict because there was not sufficient evidence of fraud and false swearing to submit the issue to the jury; (4) because the jury's verdict was against the great weight of the evidence, the district court erred in denying plaintiff's motion for a new trial; (5) disputes over the value of lost property should have been referred to arbitration as provided by the policy; (6) the district court erred by allowing Standard Fire to amend at trial its allegations of fraud; and (7) the court erred by allowing Standard Fire to deduct loan payments, made by Wyckoff to the Bank subsequent to the fire, from insurance proceeds due the Bank under the insurance policy.

Standard Fire cross appeals, arguing that (1) the trial court erroneously excluded evidence regarding locked doors within the Wyckoff buildings, thereby prejudicing Standard Fire's ability to effectively present an arson defense; and (2) the trial court erred by ruling that Standard Fire was estopped from relying upon a loss payable clause in the policy as a basis for denying the Bank recovery.

For the reasons set forth below, we affirm the district court in all respects.

I.

On July 3, 1983, a fire occurred at the property of Wyckoff, a corporation wholly owned by James Wyckoff and comprised of a number of separate divisions, including a fund raising division, a fruit division, and a family portrait division. In both 1977 and 1980, Wyckoff granted mortgages to the Bank in order to secure loans for the construction of two buildings. The mortgages required Wyckoff to insure the buildings against damage and loss by fire, as directed by the Bank. At each loan closing, a letter was given to James Wyckoff, president of Wyckoff, Inc., requiring Wyckoff to obtain an insurance policy containing a "standard mortgage clause and provide that loss, if any, shall be payable to" the Bank. ³ In July 1981, Wyckoff granted the Bank a security interest in Wyckoff's machinery and equipment. Although Wyckoff agreed to keep the collateral insured, the exact manner in which the Bank's interest in the collateral was to be indicated on the insurance policy was not specified.

According to the testimony of Kenneth Tobias, the Bank's loan officer, the mortgage officer in charge of the closing on a loan would review the declaration page of the policy to look for the name of the Bank as mortgagee on the face of the policy or check the attached endorsements to determine whether the proper endorsement naming the Bank as mortgagee was contained therein. Subsequent to the closing of a mortgage, the monitoring of insurance was done primarily by the service department of the Bank, which would receive all notices with regard to the insurance policies of mortgagors, including notices of cancellation, non-renewal, terminations, reinstatements, or renewals. When a policy was renewed, if a clerk received a certificate rather than a policy, and the certificate indicated that the Bank was properly included as a mortgagee in the policy, a copy of the policy normally would not be required.

From July 1, 1980, until June 30, 1982, Wyckoff was insured against loss or damage to its buildings and their contents through a policy issued by Frankenmuth Mutual Insurance Company (Frankenmuth policy). A certificate of insurance, which contained separate boxes for "Mortgagee," "Loss Payee," and "Additional Insured," indicated that the Bank's interest was that of "Mortgagee." An endorsement to the insurance policy also listed the Bank's interest under a "Mortgage Clause," which indicates that the Bank, when entitled to the protections of the clause, shall not be subject to any act of negligence of the mortgagor or owner.

In early 1982, Wyckoff decided to change insurance agents and contacted William Westwood of the Westwood Insurance Agency, a duly authorized agent of Standard Fire. James Wyckoff did not specifically discuss his secured creditors' insurance requirements with Westwood. However, both Westwood and James Wyckoff agree that it was communicated to Westwood that the Bank had real estate mortgages and a secured interest in personal property, and that Westwood was aware of the Bank's mortgages and secured claim when he prepared for Wyckoff a policy procured from Standard Fire. Both Westwood and James Wyckoff testified that it was their mutual intention to protect the Bank's interest as mortgagee and secured lender. Further, James Wyckoff handed Westwood a copy of the Frankenmuth policy and instructed Westwood to "duplicate or improve upon" the coverage provided by that policy. Although Westwood only recalls receiving parts of the policy, he testified that he was sure he had access to the entire policy.

Concerning his duty as an insurance agent to Wyckoff, Westwood testified that he thought he should provide at least the coverage Wyckoff had before unless, for some reason, Wyckoff should not have had that coverage. Westwood testified that a standard mortgage clause endorsement for the Bank could have been included without any additional premium and could have provided protection for personal property as well. Westwood further testified that there was nothing to preclude him from placing the Bank's name in two endorsements, with a standard mortgage clause for real estate and a loss payable clause for contents. Westwood stated that he could not see any reason for or benefit to an insured to have a lender who is secured by real estate named in a loss payable clause instead of a standard mortgage clause.

The 1982 Standard Fire policy obtained by Wyckoff from Westwood had a policy period effective from July 1, 1982, to July 1, 1983. Subsequent to the effective date of the new policy, Wyckoff's secretary requested Westwood to provide the Bank with evidence of insurance. In accordance with this request, Westwood sent a certificate of insurance to the Bank on July 27, 1982. The certificate stated that the Bank was "indicated on the policy as mortgagee on building and contents." However, Wyckoff had not yet been issued a policy at the time the certificate was transmitted to the Bank, nor did the policy contain any endorsements naming secured lenders when it was finally prepared in Standard Fire's office in September 1982 and thereafter received by Westwood who transmitted it to Wyckoff.

In November 1982, Westwood sent a memo to Standard Fire requesting that endorsements be added to the policy, listing the Bank and various other lenders under a loss payable clause. Westwood received these endorsements and mailed copies only to Wyckoff; the Bank never received a copy of the insurance policy. Although the policy listed the Bank as a loss payee and not under a standard mortgage clause, Westwood testified...