McMahon v. Manufacturers Cas. Ins. Co.

• Decision Date: 25 April 1955
• Docket Number: No. 41968,41968
• Citation: 80 So.2d 405,227 La. 777
• Parties: Willey McMAHON v. MANUFACTURERS CASUALTY INSURANCE COMPANY.
• Court: Louisiana Supreme Court

Page 405

80 So.2d 405

227 La. 777

Willey McMAHON v. MANUFACTURERS CASUALTY INSURANCE COMPANY.

No. 41968.

Supreme Court of Louisiana.

April 25, 1955.

Gold & Hall, Alexandria, for defendant-appellant.

Gravel & Downs, Alexandria, for plaintiff-appellee.

SIMON, Justice

Plaintiff, Wiley McMahon, brings this suit against his insurer, Manufacturers Casualty Insurance Company, to recover damages in the sum of $2,564 as a result of the total loss of his car on May 29, 1953.

It appears that under the policy of insurance issued to plaintiff by defendant plaintiff is entitled to recover the actual amount of damages sustained in a wreck or collision, less the deductible sum of $50. Due notice of loss was given the defendant within the sixty-day period called for by the policy; and plaintiff alleges that despite repeated amicable demands for settlement defendant has arbitrarily, capriciously and without proper cause refused to pay the amount due under the policy; that as a result thereof he is entitled to a statutory penalty of 12% of the amount recovered, plus attorney's fees of $1000, with legal interest from date of judicial demand.

In its answer defendant admits the existence of the policy and the occurrence of the collision in which plaintiff's car was damaged. It denies total damage to the car and alleges that it could have been repaired in a satisfactory manner and restored to its original condition for an amount less than that demanded. At the outset of the trial, defendant formally tendered to plaintiff the sum of $1,392.86 in full settlement of his claim, which was rejected.

After a trial on the merits, but prior to judgment, defendant interposed and filed an exception of no cause or right of action, which was overruled. The district court, without favoring us with written reasons, rendered judgment in favor of the plaintiff for the sum of $2,050, with legal interest as prayed for. It further condemned defendant to pay statutory penalties equal to 12% of the principal amount awarded and attorney's fees of $600. It further ordered that 'plaintiff retain the salvage value' of the automobile.

From this judgment the defendant has perfected a suspensive appeal. Plaintiff answered, praying that the judgment be amended to increase the principal amount awarded to $2,450, and in all other respects affirmed.

Under its exception of no right or cause of action, defendant contends that the Rapides Bank & Trust Company is a necessary and indispensable party to this suit on the ground that the policy issued in favor of plaintiff contains a loss payable clause, the pertinent part of which reads: 'Loss or damage, if any, under the policy shall be payable as interest may appear to Assured and Rapides Bank & Trust Company * * *.' It is shown that the Rapides Bank & Trust Company, as mortgagee, had a payable interest at the time of the accident in the amount of $1,751, represented by an encumbrance on plaintiff's automobile, payable out of any settlement made in favor of plaintiff as a result of any loss.

We have had several occasions to interpret and apply the effect of a loss payable clause as is here presented. In the case of Officer v. American Eagle Fire & Insurance Company, 175 La. 581, 143 So. 500, 501, in reviewing the legal effect of such a clause, we said:

'This policy throughout shows that it was intended to evidence a contract between the insurer and the assured, and not one between the insurer and the mortgagee. The mortgagee was not intended to be and was not made a party to it. He was designated as the payee of a part but not all the proceeds thereof in case of loss or damage. The insurance was made payable to him only as his interest might appear. His interest in the policy was not commensurate with the amount of the insurance which exceeded by far the amount originally due him. * * *

'The policy was in no sense a contract between the insurer and the mortgagee. The assured owned the property covered and controlled it. He consented that in case of loss or damage to his property by fire a portion of the proceeds of the policy should be paid by the insurer to the mortgagee, as his interest might appear. This provision in the policy did not constitute the mortgagee 'virtually the assured,' as was held by the Court of Appeal.

'The clause in this policy making the proceeds, if any, payable to the mortgagee, as his interest might appear, is what is generally referred to an an ordinary or open mortgage payable clause, under which the assured mortgagor remains the responsible party, or party in interest, to control the insurance and the adjustment of the loss. Under policies containing such a clause, the contract remains one exclusively between the insurer and the property owner. The mortgagee is only a conditional appointee of the mortgagor to receive part of the proceeds in case of loss. As such conditional appointee, the mortgagee was entitled to receive so much of any sum that might become due under the policy as did not exceed his interest as mortgagee, and no more.' (All italics ours.)

In the case of Brooks v. Liverpool & London & Globe Ins. Co., 144 So. 788, 789, the Court of Appeal in applying the doctrine announced by us in the Officer case, supra, and after quoting at length therefrom, said:

'* * * This loss payable clause did not change the contract as between the insurance company and the insured. Under policies containing such a clause, the contract remains one exclusively between the insurer and the property owner, and therefore the property owner is the proper party to institute suit under said policies. * * *' (Italics ours.)

In the case of In re Clover Ridge Planting & Mfg. Co., 178 La. 302, 151 So. 212, 223, this Court, in citing with approval the decisions reached in the Officer case, supra, said:

'This holding is in exact accord with the jurisprudence of other states, as shown by the cases there cited and the following additional authorities:

'In Walker v. Queen Ins. Co., 136 S.C. 144, 134 S.E. 263, 270, 52 A.L.R. 259, the court said:

"It is universally held that the open mortgage clause does not create a new and independent contract between the insurance company and the mortgagee; that the original contract between the company and the insured remains.'

'In Van Buren v. [St. Joseph County Village] Fire Ins. Co., 28 Mich. 398, the court said:

''But this policy creates no contract relation between the insurance company and the mortgagee. It is a contract only between the company and the plaintiff.'

'In Cooley's Briefs on Insurance, vol. 3, page 2383, it is said:

"If the policy contains merely the ordinary loss payable clause, the mortgagee is merely an appointee to receive payment in case of loss and has no direct rights against the insurer, but recovers solely on the right of his mortgagor, and is therefore affected by a forfeiture, the same as the mortgagor. * * *

"The theory of the rule is, as shown in the leading case of Grosvenor v. Atlantic Fire Ins. Co., 17 N.Y. 391, that the policy is the contract of the mortgagor and an insurance of his interest, the mortgagee being merely an appointee to receive the money in case of loss. The contract as to him is collateral to the principal undertaking to pay the mortgagor." (All italics ours.)

See, also, Eicher-Woodland Co. v. Buffalo Ins. Co. of New York, 198 La. 38, 3 So.2d 268.

We, therefore, conclude that the exception of no right and no cause of action was properly overruled.

The main issue presented for our determination is the extent and measure of damages suffered by plaintiff as the result of the accident. The record discloses that on March 15, 1953, plaintiff purchased a new 1953 Kaiser automobile for the price of $2,845.61; that on May 29, 1953, the car was involved in an accident and extensively...