Semo Motor Co. v. National Mut. Ins. Co.

• Decision Date: 15 October 1964
• Docket Number: No. 8295,8295
• Citation: 383 S.W.2d 158
• Parties: SEMO MOTOR COMPANY, a corporation, Plaintiff-Respondent, v. NATIONAL MUTUAL INSURANCE COMPANY, formerly known as Colonial Mutual Insurance Company, a corporation, Defendant-Appellant.
• Court: Missouri Court of Appeals

Page 158

383 S.W.2d 158

SEMO MOTOR COMPANY, a corporation, Plaintiff-Respondent, v. NATIONAL MUTUAL INSURANCE COMPANY, formerly known as Colonial Mutual Insurance Company, a corporation Defendant-Appellant.

No. 8295.

Springfield Court of Appeals, Missouri.

Oct. 15, 1964.

Dwight Crader, Sikeston, for defendant-appellant.

Harry A. Blanton, Blanton, Blanton & Rice, Sikeston, for plaintiff-respondent.

HOGAN, Judge.

This action was brought on an automobile insurance policy issued by the appellant insurer. The automobile involved was destroyed in a collision, and the owner thereafter discharged the responsible tort-feasors by accord and satisfaction, but failed to discharge the mortgage debt against the automobile. The plaintiff, who was the original vendor, brought this action as assignee of the mortgage and had judgment against the defendant insurer for the amount of the unpaid debt, plus interest. The defendant has appealed, and the general question before us is whether, in the circumstances, the insured's release of the tort-feasors has released the insurer from liability to the mortgagee.

The case was tried to the court upon stipulated facts, and the substance of the stipulation is that on October 27, 1959, the plaintiff sold the automobile involved to one Ray Smith. At the same time, Smith gave the plaintiff his promissory note, secured by a mortgage on the automobile, and the note and mortgage were at once endorsed and sold to General Motors Acceptance Corporation at Blytheville, Arkansas. On March 14, 1960, the defendant (actually its predecessor in interest) issued an automobile insurance policy covering the automobile in question to Smith and his wife, Naomi. The policy provided coverage against loss by collision or upset, and in material part provided by Item 3 that, in consideration of the premium and 'subject to the limits of liability, exclusions, conditions and other terms of this policy,' the carrier agreed to pay direct and accidental loss of or damage to the insured automobile under the coverages specified, and this item concluded:

'LOSS PAYEE: Any loss under Coverage A, B, C, D, E and F is payable as interest may appear to the named insured and G.M.A.C., Blythesville, Arkansas.'

Coverage B is the collision or upset coverage.

On May 6, 1960, while the policy was in effect, the automobile was destroyed in a collision. It is stipulated that the loss was covered by the policy and that at the time of loss the defendant became obligated to pay the mortgagee the sum due it under its chattel mortgage.

On July 26, 1960, Mr. Smith (the insured mortgagor) brought an action against the insurer to recover the amount due because of the collision loss; recovery was also sought for vexatious delay and attorneys' fees.

At about the same time, Mr. Smith commenced an action against the responsible tort-feasors in another court. We do not know when this second action was initiated, but from the stipulation of facts we know that on August 9, 1960, Mr. Smith filed an amended petition against these tort-feasors seeking to recover only for personal injuries, without making claim for any property damage. Though it is not shown precisely how much knowledge the insurer had concerning this second suit, it is apparent from the record that it made some claim of lien upon the proceeds of this second action under the subrogation provision of its policy.

On March 8, 1961, Mr. Smith executed a full release to the responsible tort-feasors. The release appears in the record, but we do not know when Mr. Smith received payment nor when the release was delivered. On April 26, 1961, the insurer's attorney addressed a letter to the insured's attorney advising him that, although the carrier had in the past asserted a lien, it would not further assert its lien if the action upon the policy was dismissed. Upon receipt of this letter, both the action against the insurer and the action against the responsible tort-feasors were dismissed with prejudice.

In the meantime, default had been made in payment of the mortgage debt, and consequently G.M.A.C. reassigned the note and mortgage to the plaintiff. The validity of this assignment is not questioned on this appeal. Plaintiff made demand for the balance due on the mortgage debt, and the insurer refused the demand. This action followed.

The appellant argues that by fully releasing the responsible wrongdoers, depriving the insurer of its right to subrogation, the policy has been forfeited by breach of condition subsequent and it argues that since in this instance the mortgagee's rights were wholly derivative, and the insured has no right of recovery, the mortgagee's right of recovery is also barred. The respondent maintains that the course of dealing between the insured and insurer amounted to a settlement of the loss without the mortgagee's participation or consent, and is therefore not binding on the mortgagee.

The parties' arguments, in large measure, center around two well-established and somewhat conflicting principles. The appellant insurer bases its argument on the policy provisions, pointing out that there are in general two types of loss payable provisions in property insurance policies. The 'open' loss payable clause usually provides that, subject to the terms and conditions of the policy, the insured's loss, if any, shall be payable to the insured and the mortgagee as their interests may appear. The 'standard' or 'uniform' mortgage provision ordinarily contains a somewhat similar expression, but also provides that no act or omission of the insured shall invalidate the policy as to the mortgagee. Not all such wordings are identical, of course, and we do not undertake to deal generally with the nature and effect of loss payable provisions; however, the distinction generally drawn, as the appellant says, is that under the open loss payable clause the mortgagee stands in the mortgagor's shoes, and is usually considered subject to the same defenses, while under the standard clause a breach of the policy terms is no defense to an action by the mortgagee. ¹ The appellant's position is that since the insured has barred his own action, he has also barred any action by the mortgagee.

The respondent, on the other hand, minimizes the difference between the open and standard loss payable provisions, and argues that any adjustment, settlement or other disposition of the insured's claim made without the mortgagee's participation or consent is not binding on the mortgagee, whose rights became vested at the moment of loss. The respondent bases this argument on the well-established principle that even when the loss payable clause is of the open type a mortgagee entitled to the proceeds of an insurance policy is not bound by a settlement of the loss made by the carrier and its insured, where the settlement or adjustment is made without the mortgagee's knowledge or consent. ²

A word here concerning the posture of this case on appeal, or at least our view of it, is appropriate. The case is before us on stipulated facts, and ordinarily when an action is tried upon an agreed statement of fact, the sole question presented on appeal is whether the judgment is represented by the proper legal conclusion upon the facts stipulated, Jewel Tea Co. v. City of Carthage, 257 Mo. 383, 388, 165 S.W. 743, 744, but such is not invariably the case. The stipulation here does not, for example, show whether the insurer had knowledge of the release executed by the insured when it waived its claim to subrogation if the action against it were dismissed, nor does it show that the settlement with the responsible wrongdoers had been fully effectuated by March 8, 1961, when the release was signed. We do not know precisely the nature and extent of the information which the insurer had concerning the assured's negotiations with the responsible tort-feasors, but we consider it a reasonable inference that it knew of the action pending against the responsible tort-feasors and that it made its claim of lien against the proceeds of that suit. Therefore, since these ultimate facts or factual inferences are not stipulated, we must view the conceded facts in a light most favorable to the respondent and reject inferences favorable to the appellant, and affirm the judgment if that can be done upon any reasonable theory of the law and facts. Murphy v. Doniphan Telephone Co., 347 Mo. 372, 379, 147 S.W.2d 616, 619-620[7, 8].

Even so, the case is not without its difficulties. In point of fact, none of the authorities cited from our own jurisdiction actually rules the precise point in question, so far as we can determine. There are several fairly recent cases which indeed hold, as we read them, that settlement with, or release of, a tort-feasor for the full amount of the loss defeats the insurer's right of subrogation, and no recovery can thereafter be had against the insurer on the policy, e. g., Richardson v. Employers Mut. Liability Ins. Co. of Wis., Mo.App., 269 S.W.2d 132, 135-136 ; Knight v. Calvert Fire Ins. Co., Mo.Spp., 268 S.W.2d 53, 55 , and this appears to be the law generally, Anno., 38 A.L.R.2d 1095, 1096-1098, Section 2 (1954), but these authorities do not deal specifically with a mortgagee's rights after loss, but only with the insured's right of action on the policy. Ford v. Iowa State Ins. Co., supra, n. 1, 317 Mo. 1144, 298 S.W. 741, 56 A.L.R. 842, does discuss the rights of a mortgagee under an open loss payable clause upon forfeiture by the assured, but does not take into account the effect of the carrier's knowledge of a policy violation which occurs after loss, nor deal with settlement of an admittedly covered loss without the mortgagee's consent. Ramsey v. Farmers' Mut. Ins. Co. of Macon, Mo., 234 Mo.App. 1102, 139 S.W.2d 1027, deals with the mortgagee's rights under an open loss payable clause in a case where the policy had been forfeited by reason of foreclosure before loss, but that case...