Fancher v. Carson-Campbell, Inc.

• Decision Date: 25 January 1975
• Docket Number: CARSON-CAMPBEL,INC,No. 47517,47517
• Citation: 216 Kan. 141,530 P.2d 1225
• Parties: Charles E. FANCHER and Virginia D. Fancher, Appellees, v., et al., Appellants.
• Court: Kansas Supreme Court

Page 1225

530 P.2d 1225

216 Kan. 141

Charles E. FANCHER and Virginia D. Fancher, Appellees, v. CARSON-CAMPBELL, INC., et al., Appellants.

No. 47517.

Supreme Court of Kansas.

Jan. 25, 1975.

Syllabus by the Court

1. The standard or union mortgage clause in a policy of insurance creates a new and independent contract which entitles the mortgagee to recover under the policy of insurance, notwithstanding the effect of any act or neglect on the part of the owner or mortgagor of the property.

2. The test to be applied in determining the intention of the parties to an insurance policy is not what the insurer intended the policy to mean, but what a reasonable person in the position of the insured would understand it to mean. Since an insurer prepares its own contracts, it has a duty to make the meaning clear, and if it fails to do so, the insurer and not the insured must suffer. Thus, if the terms of an insurance policy are ambiguous or susceptible of more than one meaning, the meaning most favorable to the insured must prevail.

3. In a policy of insurance, application of the words 'mortgagee (or trustee)' to the interest held by the seller in the subject matter of a conditional sales contract creates an ambiguity.

4. In a policy of insurance covering the interest of both buyer and seller in the subject matter of a conditional sales contract and naming a bank as escrow agent, the duties and functions of the bank are sufficiently similar to that of a trustee that a person in the position of the seller could reasonably understand the policy to mean the bank was acting as a trustee.

5. In an action on an insurance policy by the seller of property by conditional sales contract to recover a loss caused by fire, the trial court did not err in entering summary judgment in favor of plaintiffs for the stipulated loss and attorney fees.

Raymond L. Dahlberg of Turner, Chartered, Great Bend, argued the cause and was on the brief for appellant, Marysville Mut. Ins. Co.

Gerald W. Scott of Blair, Matlack, Rogg, Foote & Scott, P.A., Wichita, argued the cause and was on the brief for appellees.

OWSLEY, Justice:

This is an appeal from an order of the trial court granting summary judgment in favor of the appellees, Charles and Virginia Fancher, and against the appellant, Marysville Mutual Insurance Company (Marysville), for fire damage to insured premises. The premises were insured by Marysville and were the subject of a conditional sales contract in which the Fanchers were sellers and Okla and Virginia Watts were purchasers. We are concerned with the right of the Fanchers to recover under a standard or union mortgage clause included in a policy of insurance which did not name them as the insured, but did name an escrow agent, farmers and Merchants State Bank, of Derby, Kansas, as the 'mortgagee (or trustee).'

On June 23, 1972, the Fanchers entered into an escrow contract with the Watts to convey to them a certain duplex located in the city of Wichita, Kansas, for the principal sum of $4,500. By the terms of the contract, $4,300 of the purchase price was to be paid by the Watts in equal monthly installments over a period of seven years, with interest on the unpaid balance at seven percent per annum. In addition, the Watts agreed to keep the premises insured at all times against loss by fire and other hazards for at least the unpaid balance of the purchase price. The insurance was to be written in a company acceptable to the appellees, with a purchaser-under-contract clause to the Watts, the proceeds to be payable to the parties as their interest may appear. A provision was included in the purchase contract requiring the sellers to execute a general warranty deed and place it in escrow with the Farmers and Merchants State Bank (Bank), which was to act as escrow agent for the parties.

On October 16, 1972, Okla Watts obtained a policy of fire insurance from Marysville covering the conveyed premises. The amount of coverage was $10,000 and the policy contained a standard mortgage clause naming the Bank as the 'mortgagee (or trustee).'

On October 28, 1972, the property in question was completely destroyed by fire, and Okla Watts filed a claim seeking the proceeds of insurance under the policy. Marysville denied the claim of Watts. Subsequently, the Bank, on behalf of the Fanchers, made demand for the principal amount plus interest under the provisions of the standard mortgage clause contained in the policy. Marysville likewise denied any obligation to make payments to the Fanchers, claiming the Bank was the mortgage interest holder under the terms of the policy and that the insurance company had no knowledge of the Fanchers or of the existence of their interest. Marysville refused to pay the fire loss, either to the Bank or to the Fanchers.

Consequently, the Fanchers brought an action in the district court against Marysville, its agent Carson-Campbell, Inc., and the Bank, claiming the Fanchers were third party beneficiaries under the insurance policy's standard mortgage clause, and as such were entitled to the balance due on the escrow contract.

In its answer Marysville denied that the Fanchers had any rights under the provisions of the standard mortgage clause and, as an affirmative defense, alleged the contract of insurance had been rescinded and the premium returned to Okla Watts on the basis of the applicant's misrepresentation of material facts contained in the application for insurance.

After the parties filed interrogatories and requests for admissions, the Fanchers moved for summary judgment on the ground the insurance policy contained a standard mortgage clause in favor of the Bank, under which they were entitled to judgment as a matter of law. After hearing argument on the matter, the court granted the motion for summary judgment and awarded the Fanchers $4,446.27, plus attorney fees.

On appeal, Marysville contends the Fanchers were conditional vendors and not mortgagees, and as such they had no right to the proceeds of insurance payable under the standard mortgage clause. In support of this view Marysville reasons that under the express terms of the standard mortgage clause the insurance company is contracting to insure the interest of a mortgagee and not the divergent interest of a conditional vendor. Marysville also contends that if the Fanchers were permitted to recover the company would be required to assume a risk which it has never had an opportunity to investigate, which it has never had a chance to evaluate, and which it has never had the option of accepting or rejecting.

Marysville further argues the Fanchers have no right to the proceeds from the insurance policy in question in that the policy expressly provides under the standard mortgage clause that the entire clause is void unless the name of the mortgagee or trustee is inserted on the first page of the policy. As the Fanchers were nowhere named in the policy it is Marysville's contention that they are not entitled to the benefits and...