Mann v. Glens Falls Ins. Co.

• Decision Date: 19 June 1974
• Docket Number: Civ. No. R-2847 BRT.
• Citation: 418 F. Supp. 237
• Parties: Doreen C. MANN, Plaintiff, v. GLENS FALLS INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Nevada

418 F. Supp. 237

Doreen C. MANN, Plaintiff, v. GLENS FALLS INSURANCE COMPANY, Defendant.

Civ. No. R-2847 BRT.

United States District Court, D. Nevada.

June 19, 1974.

Breen, Young, Whitehead & Hoy, Reno, Nev., for plaintiff.

Richard P. Waite, Reno, Nev., Jerome F. Downs, San Francisco, Cal., for defendant.

OPINION

BRUCE R. THOMPSON, District Judge.

This is an action by Doreen C. Mann, a retired music teacher, residing in Reno, Nevada, and a citizen of Nevada, against the defendant, Glens Falls Insurance Company, a citizen of the State of New York. The jurisdiction of this Court is based upon diversity of citizenship and the amount in controversy. 28 U.S.C. § 1332.

On August 19, 1969, in consideration of a premium of $375, paid by plaintiff to defendant, defendant issued to plaintiff a fire insurance policy covering her dwelling house located on real property owned by her approximately five miles east of Fernley, Nevada in the County of Lyon. The policy covered a period of three years from August 19, 1969 to August 19, 1972. The policy, as originally written, was a standard owner's fire insurance policy with a mortgage clause, that is, a loss payable clause, to the Security National Bank of Nevada which, at that time, apparently had a security interest in the property.

On April 14, 1972, plaintiff sold the property to Loren J. Bates and Timothea Bates for $25,000. She received $2,000 cash down payment, the balance of the purchase price being represented by a promissory note in the amount of $23,000 payable at $150 per month, secured by a deed of trust on the property. The only memorialization of the agreement between plaintiff and Mr. and Mrs. Bates is contained in the escrow instructions which provided that "fire insurance as handed you" would be pro rated to the close of escrow. The deed of trust to be executed by the purchasers deposited in escrow did not require the trustor to purchase fire insurance with loss payable clause for the benefit of plaintiff. At the close of escrow, the insurance policy was returned to plaintiff. Plaintiff testified that she intended to maintain the insurance policy until the purchasers obtained other insurance and that after the fire loss, she and Mr. and Mrs. Bates agreed to use the insurance proceeds to rebuild the property. However, the terms of the contract between plaintiff and Mr. and Mrs. Bates with respect to insurance were not in issue in this action and neither Mr. Bates nor Mrs. Bates testified. It is possible that if the insurance indemnity had been paid by defendant to plaintiff and plaintiff had refused to divert the proceeds to rebuilding the residence, an action might have been instituted by Mr. and Mrs. Bates to require this disposition of the proceeds and, in such an action, the full terms of the rather indefinite agreement on the sale of the property might have been fully developed and decided.

On May 12, 1972, the dwelling house on the property was destroyed by fire. Plaintiff promptly informed the insurance carrier. After investigation, the adjuster determined that the replacement cost of the structure was approximately $19,600; that the actual cash value was probably in the area of $16,000; and that the value of the land was approximately $6,000. It was determined that plaintiff had suffered a loss in the full amount of the policy, that is, $15,000.

Plaintiff repeatedly informed defendant, through defendant's agents and adjusters, of her financial dependence on the payments from the mortgage on the property, of the inability of herself or the mortgagors to reconstruct the property without the insurance proceeds, and of the fact that Mr. and Mrs. Bates were camping on the property pending reconstruction in an attempt to honor the obligation under the note and deed of trust. The adjusters gave repeated assurances that plaintiff's loss would be settled under the policy.

The Underwriters Adjusting Company, the claims facility and adjusters for defendant, recommended payment to plaintiff of the sum of $15,000 on the condition that plaintiff execute a partial assignment to defendant of her interest under the Bates note and deed of trust to the extent of the indemnification paid. The law firm of Vargas, Bartlett & Dixon of Reno, Nevada, was requested to prepare such an assignment and Mr. Roger Newton of that firm, on July 27, 1972, after reviewing the facts, advised the defendant company that to demand an assignment "would be imposing conditions, not a part of the contract of insurance, upon the insured for the purpose of attempting to recover monies to which they are not entitled." Defendant, through the Underwriters Adjusting Company, then requested the opinion of the law firm of Thornton, Taylor & Downs. Mr. Jerome F. Downs of that firm, quoting the subrogation clause of the insurance policy, reached the conclusion that the defendant was entitled to demand a partial assignment. In his opinion letter of August 7, 1972, Mr. Downs stated:

"If the insurer is not permitted to subrogate here, it means Mann will be paid twice, once by the insurer and once in accordance with the terms of the Bates' promissory note. The authorities are uniform that where an owner of property stops being an owner and becomes a mortgagee, the insurable interest in the premises is retained, but only as a mortgagee. As the policy also contains the covenant for subrogation quoted above, the assignment of the deed of trust is authorized to prevent unjust enrichment of the insured.

"The fact of this assignment will undoubtedly engender a complaint by Bates as he asserts he intended to have the benefit of the insurance. The intention is probably true. However, he did not do the things necessary to secure this benefit.

The file suggests he was negligently treated by the escrow holder whose duty it usually is to see that the new owner is properly insured. There may also be negligence on the part of counsel. The deed of trust is on a form bearing the name of Breen, Young, Whitehead and Hoy, Attorneys at Law in Reno. If the law firm drew the deed of trust as part of a legal service rendered to Bates, it failed to properly provide for the protection of its client, and is accordingly answerable in damages."

Mr. Downs submitted with his letter a form of absolute assignment to Glens Falls Insurance Company of plaintiff's rights under the Bates note and deed of trust to the extent of $15,000 subject to the prior claim of plaintiff under that note to the unpaid balance.

After receipt of the foregoing letter, the adjusters informed plaintiff that the claim would be paid if and only if she would execute the assignment. Plaintiff refused to make the assignment after consulting with her attorney. She countered with an offer to enter into an agreement with defendant to the effect that the insurance proceeds would be devoted to reconstructing the dwelling on the property. Defendant rejected this solution. Thereafter, on February 27, 1973, plaintiff instituted this action on the policy seeking actual damages, consequential damages and punitive damages. As recently as June 11, 1973 (Exhibit 8), plaintiff offered to accept payment of the face amount of the policy, plus interest in full settlement of the litigation. The offer was not accepted.

As a direct and proximate consequence of defendant's failure to pay the indemnity provided by the insurance policy, Mr. and Mrs. Bates were unable to make the payments on the note and deed of trust, and, on June 4, 1973, plaintiff accepted from Mr. and Mrs. Bates a reconveyance of the property, that is, a "deed in lieu of foreclosure," which recites that it is accepted in full satisfaction of all obligations secured by the deed of trust on the property reconveyed. The property, on April 14, 1972, before the fire, had a fair market value of $25,000, this being established by the arms-length sale consummated at that time. At the time of the fire, approximately $23,000 remained due and unpaid on the purchase price. After the fire, the value of the unimproved land was between $6,000 and $9,000.

After the fire, plaintiff's income (that is, money available for living expenses) consisted of approximately $300 per month realized from Social Security benefits and the proceeds of sales of other property. The loss of $150 per month from Mr. and Mrs. Bates on the note and deed of trust compelled plaintiff to live in a converted storeroom lacking any heating outlets and lacking space in which to place her furniture. The loss of the additional cash income has forced plaintiff to forego her customary program of medical care and particularly the care of her eyes and teeth. Plaintiff has been compelled to continue in her present inadequate housing and has been severely limited in her normal social, cultural and business activities for lack of transportation.

After plaintiff was compelled, by the circumstances due to defendant's failure to pay the indemnity provided by the fire insurance policy, to accept the deed in lieu of foreclosure, and after her attorney's letter of June 11, 1973, Exhibit 8, informing defendant of this event and offering to accept the policy proceeds in full settlement of the pending litigation, the only response by defendant was to assert her acceptance of the deed in lieu of foreclosure as an additional defense to its liability under the fire insurance policy. Defendant at this time knew and at all pertinent times knew that the fire loss had destroyed approximately two-thirds of the market value of the property insured and that the property which was the subject matter of the note and deed of trust was then security for not less than $8,000 of the balance remaining due and unpaid under the note and deed of trust.

The Requirement of an Assignment. There is no dispute that proof of loss was made and that plaintiff has complied with all the conditions of the policy entitling her to payment of the indemnity except for the requirement insisted upon...