Honaker v. Farmers Mut. Ins. Co.

• Decision Date: 05 November 1973
• Citation: 313 A.2d 900
• Parties: Bernard E. HONAKER, Jr. and Cynthia S. Honaker, his wife, Plaintiffs, v. FARMERS MUTUAL INSURANCE COMPANY et al., Defendants.
• Court: Delaware Superior Court

Page 900

313 A.2d 900

Bernard E. HONAKER, Jr. and Cynthia S. Honaker, his wife, Plaintiffs, v. FARMERS MUTUAL INSURANCE COMPANY et al., Defendants.

Superior Court of Delaware, New Castle County.

Nov. 5, 1973.

Clement C. Wood, of Allmond & Wood, Wilmington, for plaintiffs.

Roger P. Sanders, of Prickett, Ward, Burt & Sanders, Wilmington, for defendant Peoples.

OPINION ON DEFENDANT PEOPLES' MOTION FOR SUMMARY JUDGMENT

TAYLOR, Judge.

Plaintiffs obtained a mortgage loan on their property from defendant Peoples Bond and Mortgage Company (Peoples). The mortgage required plaintiffs to maintain insurance coverage on the property in an amount insufficient to cover the mortgage. In addition, the mortgage required plaintiffs to pay to Peoples monthly payments sufficient to pay the premium for the insurance coverage when the premium becomes due. The mortgage subsequently was assigned to Cortland Savings Bank (Cortland) but Peoples remained as the servicing agent for the mortgage. The three year insurance policy which was taken out at the time the mortgage loan was made expired on September 16, 1971. Thereafter, there was no insurance coverage on the property. On February 1, 1972, the property was damaged by fire. Plaintiffs seek damages from peoples, Cortland, the carrier of the original policy which had expired, and the agents who arranged the sale of the property to plaintiffs and who placed the original insurance. The matter is before the Court on the motion of Peoples for summary judgment.

Three issues exist as to the rights of plaintiffs against Peoples, the first is the rights and obligations flowing from the terms of the mortgage; the second is the rights which plaintiffs may have by virtue of a servicing agreement between Peoples and Cortland; and the third is the rights and obligations of Peoples by virtue of its dealings with plaintiffs.

Turning to the rights and obligations arising under the terms of the mortgage, the mortgage provided that:

'Mortgagor will keep the improvements now existing or hereafter erected on the mortgaged premises, insured as may be required from time to time by the Mortgagee against loss by fire and other hazards, casualties and contingencies in such amounts and for such periods as it may require and will promptly pay, when due, any premiums on such insurance, provisions for payment of which has not been made hereinbefore. All insurance shall be carried in companies approved by the Mortgagee and the policies and renewals thereof shall be held by it and have attached thereto loss payable clauses in favor of and in form acceptable to Mortgagee.'

The mortgage further provided that plaintiffs would make monthly escrow payments sufficient to cover the insurance premiums when due. Following the tradition in this State, the mortgage was signed by the plaintiffs as mortgagors and was not signed by the mortgagee Peoples. The undertakings described above were preceded by the statement that the undertakings were 'in order more fully to protect the security of this mortgage'. Plaintiffs rely upon Soule v. The Union Bank, N.Y.Supr., 45 Barbour 111 (1865); and Wellens v. Perpetual Building Ass'n, D.C.Mun.Ct.App., 184 A.2d 36 (1962) in support of the proposition that the servicing of this mortgage under the terms of the mortgage created an obligation on the part of Peoples to secure and maintain the insurance coverage. Soule involved an actual placing of life insurance on the life of the borrower for a lesser term than was required by the loan agreement and an election by the mortgagee to retain the premium and assume the risk itself. Wellens involved the placing of insurance on part but not all of the buildings of the mortgaged premises. Both cases are distinguishable upon their own facts.

The Court holds that the terms of the mortgage in this case did not, per se, impose an obligation upon Peoples to maintain insurance on the property. Tonini v. Thurman, Okl.Supr., 192 Okl. 421, 136 P.2d 909; Boyce National Community Bank and Trust Company v. Albany, N.Y.Supr., 41 Misc.2d 1071, 247 N.Y.S.2d 521 (1964), aff'd, 22 A.D.2d 848, 254 N.Y.S.2d 127; Warrener v. Federal Land Bank of Louisville, Ky.Supr., 266 Ky. 668, 99 S.W.2d 817 (1936); Hampton v. Gulf Federal Savings and Loan Ass'n, Ala.Supr.,287 Ala. 172, 249 So.2d 829 (1971). Peoples' obligation under the mortgage was to receive the escrow payments, to retain those payments and to apply them to the payment of insurance premiums and other specified purposes upon receipt of bills therefor. Peoples did not by the terms of the mortgage have the obligation under the terms of the mortgage to obtain the insurance. The fact that the mortgage expressly placed the obligation upon plaintiffs to obtain the insurance negatived any obligation which might otherwise have been implied against Peoples to obtain the insurance.

The next issue is whether plaintiffs can recover from Peoples based on the obligation which Peoples undertook in its servicing agreement with Cortland to see that the premises were insured. Under proper circumstances, a person may assert rights under an agreement to which he is not a party. Wilmington Housing Authority v. Fidelity & Deposit Co. v. Maryland, Del.Supr., 4 Terry 381, 47 A.2d 524 (1946); Royal Indemnity Co. v. Alexander Industries, Inc., Del.Supr., 211 A.2d 919 (1965); Astle v. Wenke, Del.Supr., 297 A.2d 45 (1972). If plaintiffs are to benefit from the servicing agreement between Peoples and Cortland, plaintiffs must qualify as a donee beneficiary. It is to be noted that the servicing agreement contains no language indicating an intention to benefit plaintiffs. One may qualify as a donee beneficiary 'if it appears from the terms of the promise in view of the accompanying circumstances that the purpose of the promise in obtaining the promise . . . was to make a gift to the beneficiary or to confer upon him a right against the promissor to some performance neither due nor supposed or...