American Family Mut. Ins. Co. v. Welton, IP94-1905-C B/S.

• Decision Date: 15 May 1996
• Docket Number: No. IP94-1905-C B/S.,IP94-1905-C B/S.
• Citation: 926 F. Supp. 811
• Parties: AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Plaintiff, v. Marshall G. WELTON, Defendant.
• Court: U.S. District Court — Southern District of Indiana

926 F. Supp. 811

AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Plaintiff, v. Marshall G. WELTON, Defendant.

No. IP94-1905-C B/S.

United States District Court, S.D. Indiana, Indianapolis Division.

May 15, 1996.

John W. Hammel, Yarling Robinson Hammel & Lamb, Indianapolis, Indiana, for Plaintiff.

Robert J. Doyle, Stewart Due Miller & Pugh, Indianapolis, Indiana, for Defendant.

MEMORANDUM ENTRY DISCUSSING ORDER GRANTING SUMMARY JUDGMENT TO PLAINTIFF

BARKER, Chief Judge.

Plaintiff American Family Mutual Insurance Company ("American Family") has brought an action against Marshall G. Welton for declaratory judgment that it not be obligated to pay any claim by Welton arising from a fire at the property he owns. Presently before the Court is American Family's Motion for Summary Judgment. For the reasons set forth below, the Court grants American Family's motion. Accordingly, the Court enters judgment in favor of American Family Mutual Insurance Company and against Marshall G. Welton.

I. Background

On April 27, 1988 John and Cecilia Hinds ("the Hinds"), then husband and wife, purchased a house and property located at 7307 Rose Drive, Indianapolis, Indiana ("the premises"). They purchased their home with a loan from Foster Mortgage Corporation, secured by a promissory note and a mortgage on the premises. The Hinds simultaneously obtained a homeowners insurance policy from American Family ("the policy"), which insured the premises against loss from, among other things, fire. The policy was renewed each April through April 1994 and was in effect on September 1, 1994 when a fire caused great damage to the premises.

When purchased, the policy listed on its declaration page the Hinds as the named insureds and Foster Mortgage Corporation as the mortgagee. Prior to the fire, on December 1, 1988, Foster Mortgage assigned the mortgage and promissory note on the premises to FBS Mortgage Corporation ("FBS"), and the policy's declaration page was changed to show FBS as the new mortgagee. The Hinds made monthly payments to FBS on the assigned mortgage and promissory note. The payments included amounts for the policy premium which FBS disbursed annually to American Family from escrow.

In August 1990 the Hinds obtained a $10,316 loan from American General Finance, Inc. ("AGF") and, in return to secure repayment of the loan, gave AGF a promissory note and a second mortgage on the premises. The policy's declaration page was amended to show both FBS and AGF as mortgagees covered by the policy, and both were listed as mortgagees on the date of the fire.

The Hinds were divorced in February 1992, and thereafter they fell behind on the payments due on the FBS and AGF mortgages and promissory notes.¹ Upon this default, FBS filed an action in Marion County Circuit Court against John Hinds, Cecilia Hinds, and AGF to foreclose on its mortgage and to obtain a deficiency judgment. The circuit court entered a decree of foreclosure on July 15, 1993, finding that the Hinds were indebted to FBS for $52,123.68 in principal and interest and to AGF for $12,708.94 in principal and interest.

On September 7, 1993, the day before the foreclosure sale, Marshall G. Welton ("Welton") approached Cecilia Hinds and inquired about his purchasing the property. Welton asked if she would be interested in transferring title to the premises to him in exchange for $200 and his promise to pay off all past and future payments due on the two promissory notes and mortgages. The Hinds accepted the offer and transferred title to the premises to Welton on September 7, 1993. FBS and AGF agreed to move to vacate the decree of foreclosure and to dismiss the foreclosure action. In return, Welton brought the FBS payments up to date and agreed to make all future payments due on the FBS mortgage. Welton also paid a lump sum of $5,000 to AGF in settlement of the second mortgage although the parties styled the transaction an "assignment" of the second mortgage. On September 9, 1993 the circuit court set aside the decree of foreclosure, cancelled the impending foreclosure sale, and dismissed the foreclosure action. FBS sent Welton a loan assumption application in December 1993 in response to Welton's inquiry about assuming the Hinds' first mortgage and promissory note to FBS; however, Welton never completed or returned the application. Nevertheless, Welton continued to make monthly payments to FBS under the first promissory note and mortgage until November 1994 following the fire when American Family fully discharged the mortgage debt to FBS.

Despite Welton's promise to assume responsibility for repayment obligations of the Hinds to FBS, the Hinds did not assign the American Family policy to Welton, nor did American Family consent to any assignment of the Hinds' policy. In fact, the Hinds did not even inform American Family or any of its agents that they had transferred title to the property to Welton or that they no longer resided at the premises after September 1993.

After receiving title to the premises, Welton leased the house and property to others. He made all of the subsequent monthly payments due on the FBS mortgage and promissory note, which included amounts for the policy premiums, through November 1994. On September 1, 1994 a fire caused between $90,000 and $100,000 in damage to the premises. Welton contacted American Family the day after the fire and made a demand for payment based on the policy's coverage of loss from fire. Informed of the fire, American Family paid $41,411.70 to FBS on November 17, 1994 to fully discharge the Hinds' debt to FBS under the Hinds' first mortgage and promissory note. However, American Family made no other payment under the policy. Furthermore, American Family filed an action in this Court on November 18, 1994 against Welton seeking a declaration that the policy does not cover any interest Welton has in the premises and that American Family has no obligation or duty to pay or satisfy any claim by Welton arising out of the September 1, 1994 fire. On January 17, 1996 American Family brought the instant Motion for Summary Judgment.

II. Standard of Review

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when the movant shows by pleadings, discovery, and affidavits that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Renovitch v. Kaufman, 905 F.2d 1040, 1044 (7th Cir.1990). Summary judgment is especially appropriate where the issues in dispute are purely legal, see, e.g., American Jewish Congress v. City of Chicago, 827 F.2d 120, 123 (7th Cir.1987), as often occurs in cases involving contract interpretation. In such circumstances, the need for trial is avoided because there are no genuine issues of material fact that need be resolved. The parties themselves have stipulated in an April 25, 1996 joint motion that they have presented the necessary facts in this case, that no other evidence would be presented at trial, and that the matter in dispute can be resolved by the Court on American Family's motion for summary judgment.

III. Discussion

This Court has diversity jurisdiction over this action pursuant to Title 28 United States Code section 1332, the plaintiff being a Wisconsin corporation, the defendant being a resident of Indiana, and the amount in controversy exceeding $50,000. Under Indiana law, which both parties agree controls, an insurance policy is a contract and thus subject to the same rules of interpretation and construction as are other contracts. Eli Lilly & Co. v. Home Insurance Co., 482 N.E.2d 467, 470 (Ind.1985), cert. denied, 479 U.S. 1060, 107 S.Ct. 940, 93 L.Ed.2d 990 (1987); Marlatt v. United Farm Bureau Family Life Ins. Co., 640 N.E.2d 1073, 1076 (Ind. App. 1st Dist.1994); Allstate Ins. Co. v. Kepchar, 592 N.E.2d 694, 696 (Ind.App.3d Dist. 1992); American Nat. Fire Ins. Co. v. Rose Acre Farms, Inc., 846 F.Supp. 731, 735 (S.D.Ind.1994). A court's goal when analyzing contractual language is to ascertain and enforce the parties' intent as manifested in the insurance contract. Lexington Ins. Co. v. American Healthcare Providers, 621 N.E.2d 332, 339 (Ind.App.2d Dist.1993); American Family Mutual Ins. Co. v. National Ins. Ass'n, 577 N.E.2d 969, 971 (Ind. App.2d Dist.1991). Typically, intent is easy to discern because the contractual language is clear and unambiguous. When it is not, the court must rely on established rules of contract interpretation to discover the parties' intent. "The language of the policy must be reasonably construed by the court which may not find coverage unless the language of the policy admits liability." Red Ball Leasing, Inc. v. Hartford Accident and Indemnity Co., 915 F.2d 306, 308-309 (7th Cir.1990) (citing Stockberger v. Meridian Mutual Insurance Co., 182 Ind.App. 566, 395 N.E.2d 1272, 1277 (Ind.App.3d Dist.1979)).

A careful review of the policy's terms leads to the conclusion that Welton is not covered by the policy and that American Family's motion for summary judgment should be granted. Welton was not an insured because he was not a person named in the policy legally entitled to receive payment, nor did he have an interest specifically identified in the policy, nor did he obtain an assignment of the Hinds' rights under the policy. Welton concedes that he may not recover under the policy as a named insured. (Resp.Br., p. 5) Nevertheless, he contends that the policy should cover his claim for two reasons: (1) because he had a reasonable expectation that he could collect proceeds under the policy; and (2) because he is a mortgagee under the terms of the policy and thus entitled to coverage under the policy's provision for mortgagee interests.

A. Welton is not entitled to coverage under the doctrine of reasonable expectation.

Welton contends that because he obtained title to the premises and continued to pay the premiums on the policy, he had a reasonable expectation that ...