General Motors Acceptance Corp. v. Western Fire Ins. Co.

• Decision Date: 24 July 1970
• Docket Number: No. 8964,8964
• Citation: 457 S.W.2d 234
• Parties: GENERAL MOTORS ACCEPTANCE CORPORATION, Plaintiff-Appellant, v. The WESTERN FIRE INSURANCE COMPANY, a corporation, Defendant-Respondent. Springfield, Court of Appeals, Missouri
• Court: Missouri Court of Appeals

Page 234

457 S.W.2d 234

GENERAL MOTORS ACCEPTANCE CORPORATION, Plaintiff-Appellant, v. The WESTERN FIRE INSURANCE COMPANY, a corporation Defendant-Respondent.

No. 8964.

Springfield, Court of Appeals, Missouri.

July 24, 1970.

Daniel, Clampett, Ellis, Rittershouse & Dalton, Paul D. Rittershouse, William A. R. Dalton, Springfield, for plaintiff-appellant.

Woolsey, Fisher, Clark & Whiteaker, Russell G. Clark, Springfield, for defendant-respondent.

STONE, Judge.

In this jury-waived, court-tried action, plaintiff General Motors Acceptance Corporation (GMAC), mortgagee of a 1965 Buick automobile owned by Benny and Ruth Betterton, husband and wife, sought to recover as a loss payee named in an insurance policy issued by defendant The Western Fire Insurance Company (Western) to the Bettertons which afforded, inter alia, $50 deductible collision coverage on that automobile. From a judgment for defendant, plaintiff appeals.

From 1557 captioned 'Elimination Of All Coverage While Automobile Is Operated By Named Person,' which was an integral part of the Western policy for the contract year beginning November 4, 1965, stated that 'in consideration of the issuance of the policy by the company (Western) it is hereby agreed that none of the coverages provided by the policy shall apply while the automobile(s) described in the policy, or any other automobile to which the terms of the policy are extended, is being operated by the following named person: Willard L. Betterton.' While being driven by Willard L. Betterton on April 23, 1966, the Betterton Buick was damaged by collision or upset to an extent in excess of $2,699.77, the sum demanded in plaintiff GMAC's petition as its then 'interest in said automobile.' The trial court's specific finding that 'GMAC had notice of said (Form 1557) prior to the collision loss' rested upon substantial evidence, and in its appellate brief GMAC frankly concedes it 'does not challenge' that finding. Nevertheless, GMAC presented proof of loss and demanded payment of the aforesaid sum on the theory that, as a loss payee named in the policy, its interest was covered because of the mortgage clause in the policy, the pertinent portion of which provided that 'this insurance as to the interest of the . . . mortgagee . . . shall not be invalidated by any act or neglect of the lessee, mortgagor or owner of the within described automobile nor by any change in the title or ownership of the property . . ..'

As opposing counsel agree, the mortgage clause in the Western policy was what is known as a standard or union clause as distinguished from an open clause. 'A policy that simply provides that it shall be payable to the mortgagee as his interest may appear is called an 'open mortgage clause' . . .. This clause is to be distinguished from the (standard or) 'union mortgage clause.' In the latter clause it is stipulated, in substance, that in case of loss the policy is payable to the mortgagee and that his interest as payee shall not be invalidated or affected by any act or omission of the mortgagor. Where there is merely an open mortgage clause there is no privity created between the company and the mortgagee, he not being a party to the contract but merely an appointee to receive the proceeds in case of loss. His rights will be defeated by a breach of the conditions of the policy by the mortgagor. If for any reason the policy becomes void or ceases to exist as to the insured it is void and it ceases to exist as to the mortgagee. Whereas, the (standard or) union mortgage clause operates as an independent contract of insurance between the mortgagee and the company upon the former's interest, which cannot be defeated by a breach of the conditions of the policy on the part of the mortgagor or solely by his act.' ¹

But, although a standard mortgage clause operates as an independent contract of insurance between the mortgagee and the insurer as to the former's interest, 'it is such only for a limited purpose, so that the act of the mortgagor alone and of itself cannot defeat the right of the mortgagee' and 'it is not an entirely disconnected contract.' Swihart v. Missouri Farmers Mut. Tornado, Cyclone & Windstorm Ins. Co., 234 Mo.App. 998, 1004, 138 S.W.2d 9, 13(3); Northwestern National Ins. Co. v. Mildenberger, Mo.App., 359 S.W.2d 380, 384. Rather, it is a contract "ingrafted upon the main contract of insurance contained in the policy itself (and is) to be rendered certain and understood by reference to the policy itself." Ford v. Iowa State Ins. Co., 317 Mo. 1144, 1154, 298 S.W. 741, 745, 56 A.L.R. 842, 849; Trust Co. of St. Louis County v. Phoenix Ins. Co. of Hartford, Conn., 201 Mo.App. 223, 236, 210 S.W. 98, 102(4). Hence, a distinguished authority in this field appropriately admonishes that '(a) distinction which is rather important to grasp is that the policy terms are themselves not nullified by a standard mortgage clause. It is, rather, that a new contract containing those provisions is made with the mortgagee personally . . ..' 5A Appleman, Insurance Law and Practice § 3401, l.c. 292.

By Form 1557, of which GMAC had notice, the Western policy afforded no coverage while the Betterton Buick was being driven by Willard L. Betterton. That provision, which was valid (cf. Graham v. Gardner, Mo.App., 233 S.W.2d 797, 800(4); Daniel v. State Farm Mut. Ins. Co., 233 Mo.App. 1081, 1090, 130 S.W.2d 244, 248(3); 45 C.J.S. Insurance § 834b, p. 909) was an integral part of the policy contract of insurance between the owners-mortgagors of the Buick, as insureds, and Western, as insurer. Cf. Marshall's United States Auto Supply v. Maryland Casualty Co., 354 Mo. 455, 461, 189 S.W.2d 529, 532(4). And, although the standard mortgage clause in the policy contract 'operate(d) as an independent contract of insurance between the mortgagee (GMAC) and the company (Western) upon the former's interest' (Prudential Ins. Co. v. German Mut. Fire Ins. Ass'n., 228 Mo.App. 139, 142, 60 S.W.2d 1008, 1009), the provision stated in Form 1557 became no less an integral part of that contract between GMAC and Western. See again authorities cited in preceding paragraph.

By the standard mortgage clause under consideration, Western as insurer contracted with GMAC as mortgagee that 'this insurance as to the interest of the . . . mortgagee . . . shall not be invalidated by any act or neglect of the lessee, mortgagor or owner of the within described automobile nor by any change in the title or ownership of the property . . ..' In the first place, the plain and inescapable fact is that the Bettertons, the named insureds, and Western, the insurer, covenanted and agreed at the beginning of the contract year that the policy in suit would provide no insurance coverage whatever on the Betterton Buick while it was being operated by Willard L. Betterton. Hence, insurance on the Buick having been nonexistent while he was driving, there was no coverage during such periods of Willard's operation which could have been 'invalidated,' i.e., nullified. Webster's Third New International Dictionary, p. 1188. Furthermore, this state of noncoverage during such periods existed by reason of the unambiguous terms of the policy contract and not 'by any act or neglect of' the owners-mortgagors, for operation of the Buick by Willard was not prohibited by the Western policy and, if his operation of that vehicle at the time of accident was with the knowledge and permission of the named insureds-mortgagors (as to which the submitted record is silent), they did not thereby breach or violate any term, provision or condition of the policy contract. Nor does the case at bar 'involve any question of cancellation, suspension, avoidance or forfeiture of the policy.' Graham v. Gardner, Mo.App., 233 S.W.2d 797, 801(6). In the stated circumstances, we agree with the learned trial judge that the standard mortgage...