Loftis v. Stuyvesant Ins. Co.

• Decision Date: 31 December 1964
• Citation: 54 Tenn.App. 371,390 S.W.2d 722
• Parties: Herman H. LOFTIS et ux., Complainants-Appellants, v. The STUYVESANT INSURANCE COMPANY et al., Defendants-Appellees. 54 Tenn.App. 371, 390 S.W.2d 722
• Court: Tennessee Court of Appeals

Page 722

390 S.W.2d 722

Herman H. LOFTIS et ux., Complainants-Appellants, v. The STUYVESANT INSURANCE COMPANY et al., Defendants-Appellees.

54 Tenn.App. 371, 390 S.W.2d 722

Court of Appeals of Tennessee, Middle Section.

Dec. 31, 1964.

Rehearing by Defendant Denied Jan. 29, 1965.

Complainant's Petition to Rehear Granted Jan. 29, 1965.

Certiorari Denied by Supreme Court May 3, 1965.

[54 TENNAPP 373]

Claude Callicott, Nashville, for complainants-appellants.

[54 TENNAPP 374] Dan McGugin, Nashville, for the Stuyvesant Ins. Co. of New York, defendant-appellee.

Tyree Harris, Nashville, for Pioneer Finance Co. and Irving Leeds, Trustee, defendants-appellees.

CHATTIN, Judge.

The original bill in this cause was filed by the complainants, Herman H. Loftis and wife, Betty Ann Loftis, against the defendants, The Stuyvesant Insurance Company of New York, Pioneer Finance Company, and Roy W. Evans and wife, Betty L. Evans, seeking a judgment against the Insurance Company on a fire insurance policy, an accounting with the Finance Company, and a declaration of the rights of the parties to the proceeds of the policy.

The bill alleged the complainants entered into a contract with Leeds Homes of Nashville for the construction of a house on their property in Davidson County. The contract was executed on March 30, 1960. The cash price or construction cost of the house was $1,920.00, which included $1,745.00 for construction of the house plus $175.00 for fire and title insurance premiums. Complainants made no cash payment, but executed to Leeds their note for $2,782.08 payable in seventy-two monthly installments of $38.64 each, and executed a deed of trust to secure this note. Leeds assigned the note and deed of trust to the defendant, Pioneer Finance Company.

Complainants' contract required they carry fire insurance of the property at their expense. Leeds purchased a fire policy from the defendant, The Stuyvesant Insurance Company, in the amount of $2,800.00 payable to complainants, but containing the standard mortgage clause which provided any loss should be payable to Pioneer as its interest might appear.

[54 TENNAPP 375] The house was constructed. On June 2, 1960, complainants sold the property to Evans and wife who assumed the note and deed of trust executed by complainants to Leeds and also executed their note to complainants in the sum of $1,280.00, the balance of the purchase price. The property was conveyed by an installment deed which retained a vendor's lien to secure the payment by Evans and wife the note held by Pioneer and to secure the discharge by Evans and wife of all the covenants and obligations of complainants in the deed of trust executed by complainants to Leeds and assigned to Pioneer, as well as the payment of the $1,280.00 note. The installment deed also contained a second deed of trust to secure the note of $1,280.00.

The house was completely destroyed by fire on September 28, 1960, while occupied by Evans. Complainants learned of the fire a few days later and promptly notified Pioneer which promptly notified The Stuyvesant Insurance Company.

The Insurance Company assigned the claim to an adjuster in Nashville who talked with Loftis and informed him he had information Evans had procured a fire policy on the house and this fact would reduce Stuyvesant's liability because of an apportionment clause in complainants' policy. Evans had accepted a settlement of his policy. Stuyvesant admitted its liability on a pro rata basis as being $1,211.22. Complainants refused to settle for that amount.

Complainants further charged that only four of the monthly installments had been paid on the note held by Pioneer; that Evans was in default on six installments; that he had not paid any part of the note of $1,280.00; and that he had left the state and was insolvent.

[54 TENNAPP 376] With regard to Pioneer, complainants charged that in reality the principal amount of the note was $1,920.00, and the difference of this amount and the total amount of the note of $2,782.08, or $862.08, represented and included unlawful and usurious interest and illegal finance charges; and, therefore, they were entitled to an accounting to determine the amount they lawfully owed on the note.

Complainants further alleged that Pioneer was demanding complainants pay the note; that they admitted liability on the note, but their liability was secondary to that of Evans; that Pioneer should be required, prior to suing complainants on the note and foreclosing its deed of trust on the property, to enforce its rights under the insurance policy and to do so in this litigation.

Complainants alleged that the fire policy in question was a 'valued' policy and that the amount of loss was fixed at $2,800.00.

They further alleged neither they nor Pioneer had any knowledge until after the loss occurred that Evans had procured a fire policy on the property in the sum of $4,000.00 payable to Evans and wife. They averred the apportionment clause in complainants' policy had no application since the two policies did not cover the same interest and risk in favor of the same party.

The bill prayed for an accounting with Pioneer; for a decree requiring Stuyvesant to pay into the registry of the court the full amount of the policy or $2,800.00, and that the proceeds be used to first pay the note to Pioneer and the balance be applied to the $1,280.00 note of Evans to complainants; for an injunction restraining and prohibiting Pioneer from foreclosing its deed of trust or [54 TENNAPP 377] suing complainants on the note, pending the outcome of this litigation. Complainants further sought an adjudication of the status, rights and obligations of all the parties to the cause.

A pro confesso was taken against Evans and wife.

Stuyvesant demurred to the bill but subsequently waived the demurrer by filing an answer.

In its answer the defendant, The Stuyvesant Insurance Company, averred no notice had been given it of the transfer of the house and lot from complainants to Evans prior to the fire; and, therefore, the change in title without notice constituted a violation of the policy and a material change in the risk.

The answer further alleged the house was grossly over insured and constituted fraud in law if not in fact; that complainants had violated T.C.A. Sec. 56-1103 in its negotiations for the fire policy; and in the alternative its liability should be determined in accordance with the apportionment clause under which its liability would be reduced to $1,211.22. It admitted it had offered to pay this amount to complainants in settlement but insisted this was a compromise offer and not an admission of liability.

The defendant, Pioneer Finance Company, answered and admitted the $1,920.00 note which was financed by complainants included an item of $175.00 for the insurance premium and the loan closing expenses. With respect to the difference in the cash value of the house, plus the $175.00 for insurance premium and closing expenses, totalling $1,920.00, and $2,782.08, the total amount financed by complainants, was a time-price differential [54 TENNAPP 378] and did not represent any usurious interest or other illegal charges.

It alleged the balance due on the note at the time of its answer was $2,627.52, and that it was entitled to payment of its entire debt out of the proceeds of the fire policy.

This defendant further averred it had had no knowledge of the fire policy of Evans prior to the fire.

Defendant further alleged it had demanded complainants pay the note and that it was entitled to sue complainants on the note or foreclose the deed of trust securing the same; and, therefore, complainants were not entitled to the injunctive relief sought in the bill as against it.

The facts material to the issues in this cause may be summarized as follows:

On March 30, 1960, complainants executed a contract with Leeds Homes of Nashville, Inc., for the construction of a shell house on their lot in Davidson County. The cash price for the construction of the house was $1,725.00 to which was added the sum of $175.00 to cover a fire insurance premium and a loan closing costs. The contract was executed on behalf of Leeds by the defendant, Roy Evans, as its agent.

Complainants made no cash payment, but on the same day executed a note in the principal sum of $2,782.02 to Leeds payable in seventy-two monthly installments of $38.64 each, the first installment payable on June 15, 1960, and the remaining installments payable on the same day of each succeeding month. On April 4, 1960, complainants executed a deed of trust on the house and lot in which they named Irving Leeds a stockholder and officer of the [54 TENNAPP 379] corporation, as trustee. Leeds endorsed the note with recourse to the defendant, Pioneer Finance Company.

On April 12, 1960, the defendant, The Stuyvesant Insurance Company, issued a fire insurance policy covering the house in the sum of $2,800.00, which contained a standard mortgage clause with loss payable to Pioneer Finance Company.

On June 2, 1960, complainants conveyed to the defendants, Roy Evans and wife, by an installment deed, a 4.9 acre tract of land which included the lot upon which the shell house was constructed. The consideration for the conveyance was the assumption by Evans and wife of the indebtedness of complainants to Leeds and the execution of a note for $1,280.00 payable on or before June 15, 1966. A vendor's lien was retained to secure the indebtedness of complainants evidenced by their note to Leeds. The deed also contained a deed of trust on the property to secure the $1,280.00 note.

Sometime shortly after June 15, 1960, the date the first installment of the note of complainants to Leeds became due, Charles Bates, who had at the time become the manager of the Nashville office of Leeds, and Irving Leeds, Trustee in the deed of trust of complainants to Leeds securing their installment note, went to see Loftis but found...