Cherokee Farms, Inc. v. Fireman's Fund Ins. Co., Inc.

• Decision Date: 15 April 1988
• Parties: CHEROKEE FARMS, INC., and Bill Adams v. FIREMAN'S FUND INSURANCE COMPANY, INC. 86-979.
• Court: Alabama Supreme Court

Page 871

526 So.2d 871

CHEROKEE FARMS, INC., and Bill Adams v. FIREMAN'S FUND INSURANCE COMPANY, INC.

86-979.

Supreme Court of Alabama.

April 15, 1988.

Robert H. Ford and Richard Chesnut of Brinkley & Ford, Huntsville, for appellants.

W. Stanley Rodgers and Robert E. Ledyard III of Ford, Caldwell, Ford & Payne, Huntsville, for appellee.

MADDOX, Justice.

Plaintiffs appeal from the insurer's summary judgment in a suit based on the insurer's payment of insurance proceeds to the plaintiffs' mortgage holder, rather than to the plaintiffs directly.

A fire destroyed the poultry complex operated by Cherokee Farms, Inc. At the time of the fire there were two outstanding mortgages on the complex. The first mortgage was held by the Federal Land Bank of New Orleans and the second was held by the Farmer's Home Administration ("FmHA"). Cherokee Farms was insured by Fireman's Fund Insurance Company, Inc. ("FFI"). The insurance policy provided that in case of loss the payment would be the actual cash value of the property at the time of the loss, and it also contained an endorsement to provide that if the destroyed property was later replaced (under certain conditions) then the loss would be valued at the "replacement cost," resulting in an additional payment to the insured.

After the fire, FFI paid the insurance proceeds first to the Federal Land Bank of New Orleans and then to FmHA. The mortgage held by the Federal Land Bank of New Orleans was completely satisfied, but the FmHA loan was only partially satisfied. Thereafter, Bill Adams, Willie Joe Estes, and Jo Estes, the owners of Cherokee Farms, Inc., divided the corporate assets and debts and dissolved the corporation.

Adams then decided to rebuild the poultry operation and take advantage of the replacement cost provision of the insurance policy. It is undisputed that Adams talked with representatives of FFI on several occasions to determine exactly what rebuilding plan would qualify under the policy. It is also undisputed that the plan Adams adopted met the requirements of the replacement cost provision and qualified for the payment of additional proceeds of approximately $197,000. The problem in this case is how the additional payment was made.

When Adams finished the reconstruction (which also involved the purchase of another poultry complex) and had it approved by an FFI adjuster, he requested that his payment from FFI be made in three checks--one for $80,000 made payable jointly to Cherokee Farms and Chore-Time Equipment Company; one for approximately $55,000, made payable jointly to Cherokee Farms and the Bank of Ardmore; and one for approximately $62,000, made payable to Cherokee Farms. FFI made the check to Chore-Time as requested, but wrote the other two checks as jointly payable to the FmHA as well as to the parties Adams requested. Adams made several attempts to have the checks reissued as he had originally requested, but, on advice of counsel, FFI refused. Adams was able to get the check to the Bank of Ardmore endorsed by FmHA, but the other check, for $62,000, was retained by FmHA. Adams contends that because of the "loss" of this $62,000 he was unable to fulfill a contract he had with T & L Egg Farms and that that inability led to damages, for which he and Cherokee Farms, Inc., brought this action against FFI.

The plaintiffs' complaint stated three causes of action: first, that FFI had breached the insurance contract; second, that FFI was negligent and/or wanton in making the check for $62,000 jointly to them and the FmHA; and, third, that FFI had defrauded them. The trial judge granted FFI's motion for summary judgment on all the claims, and the plaintiffs brought this appeal.

Our rule of review on summary judgment is well settled. Summary judgment is proper only if there is no genuine issue of material fact and the movant is entitled to a judgment as a matter of law. Rule 56, Ala.R.Civ.P. If there is a scintilla of evidence supporting the position of the non-moving party, summary judgment should not be granted. Cole v. First National Bank of Tuskaloosa, 485 So.2d 717, 719 (Ala.1986). A scintilla has been defined as a "mere gleam, glimmer, spark, the least particle, the smallest trace." Howard v. Crowder, 496 So.2d 31, 32 (Ala.1986).

I

We first turn to the plaintiffs' breach of contract claim. The plaintiffs argue that FFI breached its contract with them by making the two checks jointly payable to them and the FmHA. We disagree. The plaintiffs contend that the absence of any reference in the endorsement to the interest of the Federal Land Bank of New Orleans or FmHA as loss payees of the replacement cost proceeds, combined with the reference in the endorsement itself to the obligation of the insured alone to replace the damaged premises, created an ambiguity in the terms of the contract.

"Alabama law requires the trial court to determine whether a contract is ambiguous, and if it is not, to determine the force and effect of the terms of the contract as a matter of law." Wigington v. Hill-Soberg Co., 396 So.2d 97, 98 (Ala.1981). The threshold issue--whether the contract is ambiguous--is itself a question of law. Brown Mechanical Contractors, Inc. v. Centennial Insurance Co., 431 So.2d 932, 942 (Ala.1983).

The trial judge in this case must have determined, based on the evidence presented, that the contract was not ambiguous, as a matter of law.

We agree with his determination. The fact that the endorsement did not refer to the mortgagees by name is not persuasive. The first paragraph of the endorsement states:

"1. In consideration of the premium of the policy to which this endorsement is attached, and only with respect to property to which this endorsement applies, the provisions of this policy are amended to substitute the term 'replacement cost (without deduction for depreciation)' for the term 'actual cash value' wherever it appears in this policy subject, however, in all other respects to the provisions of this endorsement and of the policy to which this endorsement is attached."

This paragraph clearly states that the endorsement is subject to all of the provisions of the original policy. The policy, in turn, states that the insurance company's first obligation is to pay off any outstanding mortgages (a so-called "standard mortgage clause"):

"B. Mortgage Clause: Applicable to buildings only ...: Loss, if any, under this policy, shall be payable to the mortgagee named on the first page of this policy, as interest may appear under all present or future mortgages upon the property herein described in which the aforesaid may have an interest as mortgagee in order of precedence of said mortgages, and this insurance as to the interest of the mortgagee only therein, shall not be invalidated by any act or neglect of the mortgagor or owner within the described property...."

We hold that the contract is not ambiguous and that the trial judge properly interpreted it as a matter of law, and decided that FFI did not breach its contract with the plaintiffs. We therefore hold that summary judgment was proper on this claim.

II

We next turn to the plaintiffs' claims of negligence and/or wantonness. The plaintiffs claimed that FFI acted either negligently or wantonly, or both, in the way it discharged its obligations under the insurance contract. The issue is whether the plaintiffs presented a scintilla of evidence that FFI acted either negligently or wantonly. The plaintiffs urge that the following statements from the deposition of plaintiff Bill Adams support their position on this point:

"Q. Did you have any conversation with anyone with Fireman's Fund regarding the issuance of the check, Exhibit 31, in the manner in which it was issued?

"A. Yes, sir. I talked with Ms. Chris Heimseth.

"Q. When was that?

"A. I don't know the date. I am sorry. But it was quickly after I received the check, whatever the date is on that check, 2 or 3 days after that.

"Q. Did your conversation with her take place before or after that letter?

"A. My conversation with her took place before this letter was written, the first conversation. I talked to her several times.

"Q. And tell me, if you will, please sir, the conversation that you have had with her as best you can, date it, and the substance of that conversation.

"A. My first conversation with her, of course, was just to say to her that we have completed the--or we are close to the completion or something. And I wanted to know how quick the checks could be written after we finalized our construction and got an inspection from their agent, Mr. Rodgers.

"Q. So that conversation would have occurred prior to the issuance of the check in question?

"A. Yes, sir. And in this conversation, leading up to this letter, she had told me on the telephone that the checks would be cut. And let me read this. It's been so long.

"She told me that two of the checks would be made jointly with FmHA's name on them. She had told me that the check for $80,000 would be made without FmHA's name on it.

"And I had told her at that time that that would be very difficult--put us in a very difficult situation, because FmHA had not been paid in full. And even though this had nothing to do with their mortgage, with their name on it, it would create serious problems for me.

"And she suggested that probably Mr. Ritchey [of the FmHA] would just endorse the checks and turn them over to me. And I said that's not the way it should be, because I shouldn't be negotiating with him to give me my money. You should make the checks without his name on it. And she agreed that that's the way the checks should be drawn.

"Q. Which way the checks should be drawn?

"A. With FmHA's name off of it. She didn't think FmHA's name should be on either of the checks, the way she understood their policy as involved replacement insurance.

" * * * *

"So when I got the checks, all I thought I needed to do was call Ms. Heimseth and say look, you have got these checks...