Don Chapman Motor Sales, Inc. v. National Sav. Ins. Co.

• Decision Date: 09 December 1981
• Docket Number: No. 13357,13357
• Citation: 626 S.W.2d 592
• Parties: DON CHAPMAN MOTOR SALES, INC., Appellant, v. NATIONAL SAVINGS INSURANCE COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 592

626 S.W.2d 592

DON CHAPMAN MOTOR SALES, INC., Appellant, v. NATIONAL SAVINGS INSURANCE COMPANY, Appellee.

No. 13357.

Court of Appeals of Texas, Austin.

Dec. 9, 1981.

Rehearing Denied Jan. 20, 1982.

William R. Travis, McDaniel & Travis, Austin, for appellant.

J. Stockton Williams, Jr., Karen Parker, Stubbeman, McRae, Sealy, Laughlin & Browder, Austin, for appellee.

SHANNON, Justice.

Appellant, Don Chapman Motor Sales, Inc., loss payee on a physical damage automobile insurance policy, sued appellee National Savings Insurance Company in the district court of Travis County for recovery under appellee's policy and, in addition, for appellee's alleged deceptive acts and practices. Appellee denied coverage on the basis that the automobile was damaged while being operated by an unlicensed driver. After a bench trial, the district court rendered judgment that appellant take nothing. This Court will reverse that judgment.

FACTS

Prior to May, 1977, Olivia G. Benavides purchased a used Chevrolet from appellant under a time payment agreement. The agreement provided that appellant should have a security interest in the automobile and that Mrs. Benavides should purchase physical damage insurance on the automobile, designating appellant as mortgage loss payee. Mrs. Benavides obtained the insurance and sent appellant a copy of the policy. On May 25, 1977, appellant notified Mrs. Benavides that the policy would expire on June 10, 1977, and requested that she renew the insurance coverage and furnish appellant a copy. Prior to June 10, Mrs. Benavides applied for insurance from appellee through the Mike Womach Insurance Agency of Austin. On June 22, appellee issued a renewed policy of insurance. The policy was signed by Arthur L. Smith, general 112A. Loss Payable Clause: Loss or damage, if any, under the policy shall be payable as interest may appear to (Appellant), and this insurance as to (Appellant's) interest ... shall not be invalidated by an act or neglect of the ... mortgagor (Mrs. Benavides).

agent, and showed Mike Womach Insurance Agency as agent or broker. The policy contained a Form 112A Loss Payable Clause, Texas Standard Automobile Endorsement, showing appellant as loss payee. That clause provided in part:

One of the exclusions in the policy provided:

This policy does not apply ... while the automobile is operated by ... any person under the minimum age required to obtain a license to operate a private passenger automobile....

Smith forwarded the insurance policy to the Mike Womach Insurance Agency.

Prior to July 23, 1977, the Mike Womach Insurance Agency was purchased by the Time Insurance Agency of Austin. On July 23, 1977, appellant received notice of cancellation of the insurance policy previously issued by appellant to Mrs. Benavides. The notice of cancellation was dated July 21, 1977, and was sent by Smith, general agent, showing that the reason for cancellation was non-payment of premiums. Upon receiving the cancellation notice from Smith, appellant, on the same day, wrote Mrs. Benavides informing her that the cancellation notice had been received and requesting her to take care of the matter immediately. Four days later on July 25, 1977, appellant received the renewed insurance policy issued by defendant as of June 10, 1977, under a cover letter dated July 22, 1977, from John P. Schuler of Time Insurance Agency, Inc., thanking Mrs. Benavides for her patronage. On August 2, 1977, appellee terminated this insurance policy without further notice to appellant.

On November 28, 1977, Mrs. Benavides permitted her son to drive the automobile at a time when he did not have a driver's license. On that date, the automobile was wrecked while being driven by the son. Appellant did not know that Mrs. Benavides permitted her son to operate the automobile or that the automobile had been wrecked.

In February, 1978, appellant recovered possession of the automobile from Mrs. Benavides because she had failed to make timely payments, and discovered that the automobile had been wrecked. Appellant determined that the automobile was a total loss and disposed of it for salvage value, applying the proceeds to the reduction of the debt owed to him by Mrs. Benavides. After the application of such proceeds there remained an unpaid balance of $1,214.84. Appellant made demand upon appellee to pay this amount. Appellee refused to pay, relying upon its contention that the insurance policy was cancelled on August 2, 1977.

After entry of judgment, the district court filed findings of fact and conclusions of law. The district court found as a fact that appellant relied upon the receipt of the insurance policy from Schuler of Time Insurance Agency, believing the matter causing the issuance of the cancellation notice had been corrected and that the insurance would remain in force.

In its conclusions of law, the district court determined, among other things, that Smith was acting as agent for appellee insurance company when he forwarded the cancellation notice to appellant. Schuler of Time Insurance Agency, Inc., was acting also as the agent of appellee insurance company when he forwarded the insurance policy which appellant received on July 25, 1977. Accordingly, the district court concluded the act of forwarding the cancellation notice and the subsequent act of forwarding the insurance policy were acts of appellee, and were violations of regulations issued by the State Board of Insurance pursuant to Tex.Insur.Code Ann. art. 21.21 and Tex.Bus. & Comm.Code Ann. art. 17.46(b)(2), (3), and (12) (Vernon Supp. 1980-81). The district court concluded, also, that because appellant relied upon the insurance policy and took no further action to obtain insurance to protect its security interest, appellant suffered a loss of $1,209.84.

The further conclusions of the district court were that the insurance policy excluded coverage of any loss that occurred while an unlicensed driver was driving the insured auto; appellant's loss was excluded from coverage by the terms of the insurance policy; and appellant as loss payee was not entitled to recover for a loss that was excluded from coverage under the terms of the policy.

LOSS PAYABLE CLAUSE ISSUE

By its first point of error, appellant claims the district court erred in rendering judgment for the insurance company since, as a matter of law, appellant's loss was covered by the Form 112A Loss Payable Clause in the policy. The 112A Loss Payable Clause of the policy in this appeal contains language usually described as the "union mortgage clause." 5A J. Appleman, Insurance Law and Practice § 3401 (1970). Appleman discusses the difference between the "union mortgage clause" and other types of mortgage clauses, at least insofar as fire insurance policies are concerned.

There are several different types of common loss payable or mortgage clauses. The open loss payable clause simply states that "loss, if any, is payable to B. as his interest shall appear", or uses other equivalent words, merely identifying the person who may collect the proceeds. However, there is another type variously known as the New York, standard, or union form which contains a somewhat similar expression, and then goes on to state that "this insurance, as to the interest of the mortgagee only, shall not be invalidated by any act or neglect of the mortgagor or the 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 or (sic) the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy, provided, that in case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee shall, on demand, pay the same."

Not all such wordings are identical, but it will be seen that the open loss payable clause is distinctly different from the latter forms. Only by explaining this difference now can confusion be avoided later, as entirely different results obtain under the two different forms. In the union, standard, or New York forms, the mortgagee may become liable to pay the premium to the insurer-in return, it is freed from policy defenses which the company...