Corbin v. Aetna Life & Cas. Co.

• Citation: 447 F. Supp. 646
• Decision Date: 22 February 1978
• Docket Number: Civ. A. No. 76-1350A.
• Parties: Larry Jerome CORBIN, Standard Federal Savings & Loan Association of Atlanta and T. R. Heard, Inc. v. AETNA LIFE & CASUALTY COMPANY and the Hanover Insurance Company.
• Court: U.S. District Court — Northern District of Georgia

447 F. Supp. 646

Larry Jerome CORBIN, Standard Federal Savings & Loan Association of Atlanta and T. R. Heard, Inc. v. AETNA LIFE & CASUALTY COMPANY and the Hanover Insurance Company.

Civ. A. No. 76-1350A.

United States District Court, N. D. Georgia, Atlanta Division.

February 22, 1978.

Gibson Dean, II, Buford, Ga., Huie, Ware, Stern, Brown & Ide, Atlanta, Ga., Morgan & Sunderland, Buford, Ga., for plaintiffs.

Swift, Currie, McGhee & Hiers, Atlanta, Ga., Whelchel, Dunlap & Gignilliant, Gainesville, Ga., for defendants.

ORDER

RICHARD C. FREEMAN, District Judge.

This is a diversity action, 28 U.S.C. § 1332, seeking insurance proceeds and breach of contract damages, brought by Mr. Corbin, a citizen of Georgia, against The Hanover Insurance Company hereinafter "Hanover", a New Hampshire corporation with its principal place of business in Massachusetts and against Aetna Life and Casualty Company hereinafter "Aetna", a Connecticut corporation with its principal place of business in Connecticut. Standard Federal Savings and Loan Association of Atlanta hereinafter "Standard Federal" and T. R. Heard, Inc. have intervened as party plaintiffs claiming to hold respectively the first and second mortgages on Mr. Corbin's Buford, Georgia property. The action, which was originally filed in the State Superior Court for Gwinnett County, Georgia, was removed to this court by defendant Hanover, 28 U.S.C. § 1446. Presently before the court are: (1) motions for voluntary dismissal, Rule 41(a)(2), Fed.R.Civ.P., of plaintiff Corbin and intervenor T. R. Heard, Inc.;¹ (2) motion for partial summary judgment as to liability against Aetna brought by intervenor Standard Federal; (3) motion for summary judgment of defendant Aetna; and (4) motion for summary judgment of defendant Hanover. The motions for voluntary dismissal are unopposed, see Local Rule 91.2, and are hereby GRANTED. The claims of Larry Jerome Corbin and T. R. Heard, Inc. are DISMISSED WITH PREJUDICE. Before proceeding to the merits of the remaining motions, a brief outline of the salient facts in this action is warranted.

Corbin's action as filed in July, 1976, sought to recover fire insurance proceeds as contracted for compensation for losses sustained in a fire which occurred on December 1, 1975. Corbin notified the defendant insurers of the loss on December 8, 1975. The fire damaged Corbin's home located at 34 Hamill Drive, Buford, Georgia. Standard Federal and T. R. Heard, Inc. intervened in the Corbin action to assert their respective rights as first and second mortgagees of the Buford property. Both Corbin's and T. R. Heard's motions for voluntary dismissal have been granted, leaving only Standard Federal's claims under the insurance policies.

The named insurance policies are: Hanover Homeowner's Policy, HO 75 56 52 hereinafter "Hanover Policy"; and Aetna Fire Policy, 11 FP 617329 PCA hereinafter "Aetna Policy". The Hanover policy was negotiated by Corbin as a condition of his mortgage obligation to Standard Federal. The Hanover policy set out a three-year term to run from November 1, 1972 to November 1, 1975. Whether or not the Hanover policy had been renewed and was thus in effect on the date of the fire loss is in dispute. Standard Federal was identified on this policy as the "mortgage or loss payee" to the extent of its interest in the premises. The Aetna policy was issued on November 18, 1975, directly to Standard Federal, with Standard Federal listed as the loss payee in a similar standard clause.

On December 1, 1975, the date of the fire, Corbin's indebtedness to Standard Federal totalled $34,181.54. Subsequent to the loss, Standard Federal and Aetna discussed the fire claim but were unable to reach a settlement compromise. On July 6, 1976, Standard Federal foreclosed on the Corbin property, having received no mortgage installments from Corbin since the date of the fire. Standard Federal, the sole bidder at the announced sale, bid in the property at $36,738.47, an amount representing the outstanding balance, the interest then owing, attorney's fees, and the costs of foreclosure. On July 12, 1976, Standard Federal advised the defendant insurers that it had acquired the Corbin property in fee and that it now desired rapid settlement of its fire loss. Aetna and Hanover refused and continue to refuse payment of any amount on the fire loss.

The parties contest the substantiality of the damage sustained and the apportionment of damage, if any between the two defendant insurance companies. Standard Federal and Hanover also dispute the vitality of the Hanover policy at the time of the loss. However, Standard Federal, Aetna, and Hanover each urge the court, by way of motions for summary judgment, to decide the issue of the insurers' liability to Standard Federal, the mortgagee, now that foreclosure has occurred.

Aetna and Hanover argue that Standard Federal's bidding in of the Corbin property at the foreclosure sale at the full amount of the debt, extinguished the debt and extinguished the insured's right to insurance proceeds on the unpaid debt. Aetna buttresses its arguments with contentions: (1) that the great weight of authority supports this view; (2) that the language of the insurance contract should be read to provide this solution; (3) that the insured has impaired the insurer's right of subrogation; and (4) that the allowance of recovery of insurance proceeds after foreclosure would constitute allowance of a double recovery and would foster fraud and collusion between mortgagors and mortgagees. Hanover adds to the substance of Aetna's contentions: (1) that Standard Federal failed to satisfy the state law requirements for pursuing a deficiency after a foreclosure, Ga. Code § 67-1503, and thus no legal deficiency need be acknowledged by the insurers; and (2) that the Hanover policy had expired by its own terms at the time of the loss.

Standard Federal in its motion for partial summary judgment as to the liability of Aetna and in its opposition to the summary judgment motions of both Aetna and Hanover, argues: (1) that the rights, interests, and obligations of the insured and the insurers are to be determined at the time of the loss and should be unaffected by a later arrangement between the insured and the mortgagor; (2) that several jurisdictions have declared this as a rule of law; (3) that the language of the contract provides for this result; and (4) that no double recovery is threatened as the fire loss has never been compensated. Standard Federal denies Hanover's assertion that the Hanover policy had lapsed without a timely renewal.

The Georgia courts have not specifically considered the issue presented herein, that is, whether foreclosure by the mortgagee subsequent to a loss extinguishes the mortgagee's rights to insurance proceeds as the loss payee on the policy in the amount of the foreclosure. Several foreign jurisdictions, however, have considered the issue and can offer some guidance to the court in choosing a fair and logical result. Other courts have also considered various permutations of the instant formula. The rationale and holdings in these latter cases are sometimes helpful, but other times readily distinguishable.

The pertinent provisions and terms of the contract must first be presented. Standard Federal is the loss payable insured named in both the Hanover policy procured by Corbin, the mortgagor, and in the Aetna policy procured directly by Standard Federal, the mortgagee. The contract contains the "standard" or "New York" clause, see 5a J. Appleman, Insurance Law and Practice, § 3401 at 279 (1970), which appears as:

Loss, if any, under this policy, shall be payable to the aforesaid Standard Federal as mortgagee . . . 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 of the within described property nor by any foreclosure or other proceedings or notice of sale relating to the property nor by any change in the title or ownership of the property. . . .

Aetna Policy, at 4 DF-2; Hanover Policy, at 3 HO-2 ¶ 4 emphasis added.

Aetna contends that the above clause merely says that foreclosure will not relieve liability per se, but leaves unsaid the understanding that foreclosure will affect the extent of recovery. Aetna's argument is based on the rationale of Aetna Insurance Co. v. Baldwin County Building and Loan Ass'n, 231 Ala. 102, 163 So. 604, 605 (1935):

The stipulation is that the insurance shall not be invalidated by such foreclosure; not that thereby the mortgagee may not lose his right to collect the loss by a foreclosure thereafter occurring, and occasioned by his status thus created, upon a consideration of established principles. His interest in the claim for the loss must exist not only at the time of the loss, and that is not diminished by a foreclosure which may have occurred theretofore, but it must also exist at the time of the suit and judgment. A liability may be fixed by the occurrence of the conditions provided for its existence, but after it is thus fixed, it may cease or terminate as to the parties in whose favor it exists, by events thereafter occurring which have that legal effect.

Because Standard Federal's status was no longer one of a mortgagee at the time of the suit, Aetna and Hanover contend that Standard Federal is not privileged to recover the proceeds of insurance on the mortgage debt. When the mortgage was foreclosed, the debt was extinguished and, it is argued, so too was the insurable interest. The defendant insurers cite several cases in support of their contentions, including Rosenbaum v. Funcannon, 308 F.2d 680 (9th Cir. 1962). Rosenbaum is a leading case but must be distinguished from the...