Giberson v. First Federal Sav. and Loan Ass'n of Waterloo, 67448

• Decision Date: 19 January 1983
• Docket Number: No. 67448,67448
• Citation: 329 N.W.2d 9
• Parties: Elwood C. GIBERSON and Marjorie H. Giberson, Appellants, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WATERLOO, Iowa, Appellee.
• Court: Iowa Supreme Court

Page 9

329 N.W.2d 9

Elwood C. GIBERSON and Marjorie H. Giberson, Appellants, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WATERLOO, Iowa, Appellee.

No. 67448.

Supreme Court of Iowa.

Jan. 19, 1983.

Lorna L. Williams, Des Moines, for appellants.

George D. Keith of Martin, Miller, Keith & Pedersen, Waterloo, for appellee.

Considered by REYNOLDSON, C.J., and LeGRAND, UHLENHOPP, HARRIS and McCORMICK, JJ.

McCORMICK, Justice.

Plaintiffs Elwood C. and Marjorie H. Giberson own residential property in Cedar Falls subject to a mortgage to defendant First Federal Savings and Loan Association of Waterloo, Iowa. The property was damaged by fire, and the insurer issued a check payable to plaintiffs and defendant jointly. Plaintiffs initiated the present declaratory judgment action in equity seeking to establish their right to use the money to repair the property. By counterclaim defendant asserted its right to use the money in payment of the loan on the premises. Plaintiffs filed a motion for summary judgment on the petition and the counterclaim, alleging the mortgage and insurance contract gave them a right as a matter of law to use the money to repair the premises. The trial court overruled their motion, and we granted interlocutory review of the court's ruling. We affirm the trial court.

The record shows the premises were mortgaged to defendant by plaintiffs' predecessors in title in 1974 to secure a promissory note in the principal amount of $30,800, with annual interest of 8 3/4 percent, and payable in monthly installments of $242.32 for thirty years. Plaintiffs assumed the mortgage when they purchased the property in 1976. The mortgage contained the following provision relating to fire insurance:

The mortgagors will carry insurance for fire, windstorm, hail and comprehensive coverage on all buildings and improvements now or hereafter erected upon said real estate in an amount not less than the unpaid portion of the indebtedness secured by this mortgage in a company or companies and by policies approved by the Association and will deliver such policies to the Association and will pay all premiums thereon, such policies to have attached thereto mortgage clauses providing in the event of loss thereunder that the payment shall be made to the Association up to the amount of its loan. When authorized by the Association, the money so received may be used for the purpose of rebuilding and repairing the damaged premises. If the mortgagors fail to deliver to the Association such policies 15 days prior to expiration of previous policies or to pay therefor, the Association may pay such insurance and the cost thereof shall be due it from the mortgagors and shall be secured by the lien of this mortgage.

Pursuant to this provision, plaintiffs purchased a standard fire insurance policy from the Iowa Kemper Insurance Company. The policy provided that, subject to its mortgage clause, "loss shall be payable to: First Federal Savings & Loan--Waterloo, Iowa." Among other provisions the mortgage clause recited: "Loss, if any, under this policy, shall be payable to the aforesaid as mortgagee (or trustee) as interest may appear under all present or future mortgages upon the property herein described...."

The premises were damaged by fire on February 28, 1981. The fire loss was adjusted at $37,936.67, well below the $61,000 coverage provided in the policy. The insurer issued its check for the loss to plaintiffs and defendant jointly. On the date of loss, the unpaid principal balance secured by the mortgage was $28,903.36. Defendant refused to endorse the check unless plaintiffs would apply the proceeds to pay off the mortgage debt in full. Plaintiffs declined to do so, alleging they were not in default and had a right to use the money to repair the fire damage.

Plaintiffs subsequently repaired the premises and then commenced the present declaratory judgment action. They alleged that if the mortgage was construed to allow defendant to require the mortgage debt to be fully paid they would be required to refinance the home with a loan bearing interest at 15.5 percent per annum, resulting in increased interest cost over the payment period of $37,657.45. They asserted that defendant's interpretation of the mortgage was unwarranted, "unconscionable, inequitable and unreasonable." Following the adverse ruling on their motion for summary judgment, they obtained permission to appeal.

Principles governing review of rulings on summary judgment motions are discussed in many cases and will not be repeated here. See, e.g., Millwright v. Romer, 322 N.W.2d 30, 31 (Iowa 1981).

General principles relating to the rights of mortgagees and mortgagors to insurance proceeds are well established:

The rule is that a mere mortgagee has no interest in an insurance policy issued to the mortgagor upon the mortgaged property unless such interest be created by some agreement between mortgagor and mortgagee in relation thereto. In the absence of such an agreement the insurance contract is strictly personal between the insurer and its patron. As a rule, however, the mortgagee has an equitable lien on proceeds of a fire insurance policy procured by the mortgager pursuant to an agreement to insure for the mortgagee's benefit, although the policy is not made payable to the mortgagee.

Winneshiek Mutual Insurance Association v. Roach, 257 Iowa 354, 362-63, 132 N.W.2d 436, 441 (1965).

In the present case, the mortgage contains an agreement between the mortgagee and mortgagor concerning insurance. Moreover, the insurance policy provides that its proceeds are to be paid to the mortgagee as its interest may appear. Thus defendant has an interest in the policy, and the nature of the interest is defined in the mortgage. The extent of that interest is determined as of the date of loss. See Kintzel v. Wheatland Mutual Insurance Association, 203 N.W.2d 799, 803, 810 (Iowa 1973).

In one case, where a real estate contract was not in default at the time of a fire loss, this court held that the vendor's interest could be sufficiently protected if insurance proceeds were placed with a trustee vested with authority to use them to rebuild the damaged house. See Hatch v. Commerce Insurance Co., 216 Iowa 860, 249 N.W. 164, opinion on rehearing, 249 N.W. 824 (1933). In that case, however, the contract contained no language defining the rights of the parties to the proceeds, and the result was based on equitable grounds.

In contrast, the mortgage in the present case does address disposition of fire insurance proceeds. Therefore this provision governs the rights of ...