Miller v. Russell
| Decision Date | 09 December 1983 |
| Citation | 674 S.W.2d 290 |
| Parties | Michael W. MILLER and Karen Gay Miller, Plaintiffs-Appellants, v. William A. RUSSELL and Elsie M. Russell, Defendants-Appellees. |
| Court | Tennessee Court of Appeals |
J. Jerry Foster, Chattanooga, for plaintiffs-appellants.
Josiah Baker, Goins, Gammon, Baker, Robinson & Knight, Chattanooga, for defendants-appellees.
The issue on this appeal is whether or not an insurer can be subrogated to a claim against a mortgagee who is covered by a loss payable clause in the policy.
The Plaintiffs-Appellants, Michael W. Miller and Karen Gay Miller, purchased a residence from the Defendants-Appellees William A. Russell and Elsie M. Russell. As a part of the consideration for the purchase price the Millers executed their note to the Russells, which was secured by a deed of trust on the property. As pertinent here, the deed of trust provides the mortgagors will "keep all improvements on the property insured in one or more insurance companies against loss by fire, windstorm, cyclone or tornado, for a sum equal to the balance of the principal of the debt; the insurance company or companies to be approved by and the policy or policies delivered to the holder of the debt, to whom the insurance shall be made payable." In compliance with this provision of the deed of trust Plaintiffs took out a fire and extended coverage policy with Standard Fire Insurance Company to cover the property. The Defendants were named as mortgagees in the policy and the policy provided: "If a mortgagee is named in the policy any loss payable under Coverage A or B shall be paid to the mortgagee and you as interests appear." Coverage A and B cover the dwelling and other structures on the property.
Shortly after the Plaintiffs had purchased the property it was extensively damaged by fire. Standard Fire Insurance Company issued its check for the damage and made it payable jointly to the Plaintiffs and Defendants. The Defendants endorsed the check over to the Plaintiffs who had the premises repaired. The Plaintiffs then filed suit against the Defendants for the use and benefit of Standard Fire Insurance Company under its subrogation rights. In their suit they say the Defendants had negligently damaged the wood stove chimney where the fire originated and it was concealed damage they were not aware of.
The Defendants filed a motion for summary judgment on the grounds they were insured under the policy and an insurer is not permitted to subrogate against its insured.
The court sustained the motion and the Plaintiffs have appealed. They present the single issue of "whether or not a mortgagee/loss payee on an insurance policy is or is not a person against whom the insurer of property may subrogate."
This issue has not been addressed in this jurisdiction nor have we been cited to any cases, or found any, from other jurisdictions where the precise issue has been addressed. The general rule is that after the insurer has paid a loss, it "is entitled to be subrogated pro tanto to any right of action which the insured may have against a third person whose negligence or wrongful act caused the loss." 44 Am.Jur.2d Insurance § 1794 (1982). See Railway Co. v. Manchester Mills, 88 Tenn. 653, 14 S.W. 314 (1890) where the Court stated that "if the insured owner accepts payment from the insurance company, they (the insurance company) may use the name of the assured in an action to obtain redress from the carrier whose failure of duty caused the loss." Id. at 663, 14 S.W. 314. See also Travelers Insurance Co. v. Williams, 541 S.W.2d 587 (Tenn.1976); Wilson v. Tennessee Farmers Mutual Insurance Co., 219 Tenn. 560, 411 S.W.2d 699 (1966); Deming & Co. v. Merchants' Cotton-Press & Storage Co., 90 Tenn. 306, 17 S.W. 89 (1891). However, "no right of subrogation exists where the wrongdoer is also an insured under the same policy." 44 Am.Jur.2d, supra. Our precise inquiry thus must center on whether the Russells, as loss-payee mortgagees, were "insured" parties under the policy.
The Appellant contends that the mere fact that one is to receive proceeds from a policy does not in and of itself dictate that the individual is an "insured." The Appellant relies upon Kierce v. Lumbermen's Insurance Co., 162 Minn. 277, 202 N.W. 730 (1925) as support for interpretation of the term "insured." In that case the Minnesota Supreme Court determined that " 'the insured' means the person who applies for the insurance, who is named in the policy as the insured and who pays the premium, and does not include a person appointed to receive a portion of the proceeds of the policy in case of loss." Id. at 731. The court, by defining "insured" in such a limited fashion, was able to reject the contention of the insurance company that conduct by the purchasers of property had voided the company's policy with the seller.
Opposed to this rather strained approach are several decisions by courts that have confronted the closely analogous situation found with builder's risk insurance policies. Generally, in a builder's risk policy, the "builder, whether the owner of or general contractor on a building, seeks to insulate himself from loss which he might suffer because of damage to or loss of a building in the process of construction, alteration, or repair." Annot., 22 A.L.R. 4th 704 (1983). In the situation where a subcontractor negligently causes damage to the...
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