May v. Market Ins. Co.
| Decision Date | 03 March 1980 |
| Docket Number | No. 65635,65635 |
| Parties | Ira MAY v. MARKET INSURANCE COMPANY et al. |
| Court | Louisiana Supreme Court |
Oscar W. Boswell, II, Reggie, Harrington & Boswell, Crowley, for intervenor-applicant, Louisiana Bank and Trust Co.
Arthur I. Robison, Allen, Gooch & Bourgeois, A Professional Law Corporation, Lafayette, for defendants-respondents.
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Ira May instituted this action against several insurance companies to recover for a fire loss covered under certain insurance policies issued by them. Plaintiff also sought penalties and attorney's fees. Louisiana Bank and Trust Company intervened as mortgagee of the insured property claiming part of the insurance proceeds under the mortgage clauses of the insurance policies, plus penalties and attorney's fees.
After trial on the merits, the court concluded that the fire loss was in excess of the total insurance coverage and that defendants had arbitrarily, capriciously and without probable cause failed to make payment within sixty days after receipt of satisfactory proofs of loss and demands therefor. Accordingly, the trial court rendered judgments in favor of plaintiff and against defendants for the full amounts of their respective insurance policies, plus penalties and attorney's fees. Judgment was also rendered in favor of intervenor and against plaintiff for the remaining secured debt owed by plaintiff at the time of the judgment1 to be paid from the proceeds received by plaintiff from defendants. The trial court also awarded intervenor judgment against defendants for attorney's fees. Defendants appealed. Intervenor answered the appeal.
The court of appeal affirmed the trial court judgment insofar as it awarded to plaintiff the full limits under the policies with statutory penalties and attorney's fees as against each insurer; however, it reduced the award of attorney's fees to plaintiff, amended the trial court judgment as to the date from which legal interest began on the face amounts of certain of the policies, and reversed the trial court judgment insofar as it awarded attorney's fees to intervenor.2 Plaintiff and intervenor applied to this court for writs of certiorari. We denied plaintiff's application,3 but granted that of intervenor4 to consider whether intervenor is entitled to penalties and attorney's fees from defendants.
La.R.S. 22:658 provides:
All insurers issuing any type of contract other than (life and health and accident insurance) shall pay the amount of any claim due any insured including any employee under (the workmen's compensation law) within sixty days after receipt of satisfactory proofs of loss from the insured, employee or any party in interest. Failure to make such payment within sixty days after receipt of such proofs and demand therefor, when such failure is found to be arbitrary, capricious, or without probable cause, shall subject the insurer to a penalty, in addition to the amount of the loss, of 12% damages on the total amount of the loss, payable to the insured, or to any of said employees, together with all reasonable attorney's fees for the prosecution and collection of such loss, or in the event a partial payment or tender has been made, 12% of the difference between the amount paid or tendered and the amount found to be due and all reasonable attorney's fees for the prosecution and collection of such amount. Provided, that all losses on policies covering automobiles, trucks, motor propelled vehicles and other property against fire and theft, the amount of the penalty in each of the above cases shall be 25% and all reasonable attorney's fees.
Under the above statute, in order for intervenor to be entitled to recover penalties and attorney's fees from the insurers, intervenor must be an "insured" within the meaning of said statute.5
Intervenor's right to the insurance proceeds arises under the mortgage clauses of the several insurance policies. Mortgage clauses fall into two forms, the open or simple mortgage clause and the standard or union mortgage clause. The simple mortgage clause merely provides in effect that the proceeds of the policy shall be paid first to the mortgagee as his interest may appear; but the so-called standard or union mortgage clause is somewhat more specific in that it also provides that the mortgagee shall be protected against loss from any act or neglect of the mortgagor or owner, so that it shall not defeat the insurance so far as the interest of the mortgagee is concerned. Couch on Insurance § 42:648 (2d ed. 1963).
In the instant case, the several mortgage clauses are identical and provide:
Loss or damage, if any, under this policy (on building) shall be payable to the mortgagee (or trustee) named in this policy, as its interest may appear, and this insurance, as to the interest of the mortgagee (or trustee) only therein shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property, nor by any foreclosure or other proceedings or notice of sale relating to the property, nor by any change in the title or ownership of the property nor by the occupation of the premises for purposes more hazardous than are permitted by this policy. Provided that in case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee (or trustee) shall, on demand, pay the same.
Provided, also, that the mortgagee (or trustee) shall notify this Company of any change of ownership or occupancy or increase of hazard which shall come to the knowledge of said mortgagee (or trustee), and unless permitted by this policy, it shall be noted thereon and the mortgagee (or trustee) shall, on demand, pay the premium for such increased hazard for the term of use thereof; otherwise this policy shall be null and void.
This Company reserves the right to cancel this policy at any time as provided by its terms, but in such case this policy shall continue in force for the benefit of the mortgagee (or trustee) for ten days after notice to the mortgagee (or trustee) of such cancellation, and shall then cease, and this Company shall have the right, on like notice, to cancel this agreement.
Whenever this Company shall pay the mortgagee (or trustee) any sum for loss or damage under this policy and shall claim that, as to the mortgagor or owner, no liability therefor existed, this Company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made under all securities held as collateral to the mortgage debt, or may at its option pay to the mortgagee (or trustee) the whole principal due, or to grow due, on the mortgage, with interest and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities; but no subrogation shall impair the right of the mortgagee (or trustee) to recover the full amount of his, her or their claim.
Clearly, these mortgage clauses are standard mortgage clauses. Intervenor is the named mortgagee in each of the policies.
Concerning the effect of the standard mortgage clause, Couch, supra § 42:694 provides:6
Under the standard or union mortgage clause, an independent or separate contract or undertaking exists between the mortgagee and the insurer, which contract is measured by the terms of the mortgage clause itself. There are accordingly in substance two contracts of insurance, the one with the mortgagee, and the other with the mortgagor.
The mortgagee does not have the status of a beneficiary, and the effect is the same as though the mortgagee had procured a separate policy naming himself as the insured.
The consideration for the insurer's...
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