Spink v. Gen. Accident Ins. Co. of Puerto Rico, Ltd.
| Decision Date | 11 February 1999 |
| Docket Number | No. CIV.1998–042.,CIV.1998–042. |
| Parties | Robert SPINK and Vivian Spink, Plaintiffs, v. GENERAL ACCIDENT INSURANCE COMPANY OF PUERTO RICO, LTD., Mangrove Marine Center, Inc., Levette Ruan, and Carmen Ruan, Defendants. |
| Court | U.S. District Court — Virgin Islands |
OPINION TEXT STARTS HERE
Mortgagees, who were loss payees under property policy, commenced breach of contract action against property insurer and mortgagors after insurer paid proceeds for loss caused by hurricane to mortgagors. On cross-motions for summary judgment, the District Court, Moore, Chief Judge, held that: (1) standard mortgage clause in policy created separate contract between insurer and mortgagees; (2) one year limitations period in policy for bringing suits applied to mortgagees; but (3) insurer was estopped from enforcing limitations period against mortgagees.
So ordered.
James M. Derr, St. Thomas, U.S.V.I., for plaintiffs.
Franklin G. Quow, St. Thomas, U.S.V.I., for defendant General Accident Insurance Co.
This matter remains before the Court on plaintiffs Robert and Vivian Spink's [“Spinks”] motion for summary judgment. As mortgagees of a property insured by defendant General Accident Insurance Company of Puerto Rico, Ltd. [“General Accident”], the Spinks seek judgment in the amount of $114,731 for insurance proceeds that they contend General Accident erroneously disbursed to the defendant mortgagor, Mangrove Marine Center, Inc. [“MMC”], and defendant guarantors of the mortgage note, Levette and Carmen Ruan [“Ruans”].1 For the reasons set forth below, the Court will grant the Spinks' motion for summary judgment.2
On December 29, 1989, the Spinks sold their fee simple title to Parcels 29 and 35, Estate Nadir, No. 2 Red Hook Quarter, St. Thomas to MMC, a Virgin Islands corporation. The Spinks took back a $300,000 note and mortgage from MMC, which Levette and Carmen Ruan personally guaranteed as President and Secretary of MMC, respectively. As obligated by the mortgage, MMC obtained an insurance policy from General Accident providing coverage for casualty losses, including loss from windstorm.
MMC's policy covers the period from February 10, 1995, to February 10, 1996, and identifies the Spinks as loss payees in their capacity as mortgagees of the property. In addition, it stipulates that “[n]o suit shall be brought on this policy unless the insured ... has commenced the suit within one year after the loss occurs.” (Pl.'s Mot. for Summ. J., Ex. A, at 1.)
On September 15 and 16, 1995, Hurricane Marilyn damaged buildings located on the mortgaged property. MMC promptly presented a claim to General Accident. Although MMC's policy already identified the Spinks as loss payees, General Accident's authorized representative in St. Thomas wrote to the company on March 7, 1996, to remind it of the plaintiffs' interest in the policy. The Spinks and their attorney later did the same.
General Accident informed the Spinks on September 3, 1997, that it had paid $114,731.00 to MMC for loss to the insured property. General Accident had made the settlement check payable only to MMC. The Spinks filed this action on February 18, 1998.
Although the District Court of the Virgin Islands is not a United States district court established under Article III of the Constitution, Congress nevertheless has seen fit to grant it diversity jurisdiction over plaintiffs' claim under 28 U.S.C. § 1332.3 When an Article III United States district court exercises its limited diversity jurisdiction, it must apply the substantive law of that forum state or territory,4 or try to predict how the state's highest court would resolve the issue if the substantive law is unsettled.5 This Court need not predict local law, however, because it is vested with the authority to decide novel questions as a local trial court.6
General Accident asserts that the one-year limitation clause for suits on its policy with MMC bars the Spinks' claim. Whether the general limitations clause for suits against the insurer by the mortgagor bars a mortgagee's claim is an issue of first impression in this jurisdiction. The Court therefore will decide this question by applying “[t]he rules of the common law, as expressed in the restatements of the law approved by the American Law Institute, and to the extent not so expressed, as generally understood and applied in the United States.” See1 V.I.C. § 4 ().
Summary judgment is appropriate when “the pleadings ... show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Once the moving party properly supports its motion for summary judgment, the non-moving party must establish a genuine issue of material fact in order to preclude a grant of summary judgment. SeeFed. R. Civ. P. 56(e); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585–86, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Since the parties agree that there are no issues of fact, and the Spinks' motion presents only the legal question of the proper construction of unambiguous contractual terms, this matter is ripe for summary judgment. See Tamarind Resort Assocs. v. Government of the Virgin Islands, 138 F.3d 107, 110–11 (3d Cir.1998).
Without question, the Spinks were entitled to insurance proceeds for the loss that Hurricane Marilyn inflicted on the mortgaged property. The Restatement (Third) of Property, which provides the applicable rule of law, states that
[u]nless a different disposition is provided in the mortgage, the mortgagee has a right to ... funds paid on account of loss or damage to the mortgaged real estate, to the extent that the mortgagee's security has been impaired by the loss or damage, ... [including] the proceeds paid by a casualty insurer due to the occurrence of an insured loss to the real estate, if the mortgagor promised the mortgagee, in the mortgage or otherwise, to purchase the insurance.
restatement (Third) of Property § 4.7(a)(1) (1997). Since the Ruans promised the Spinks that they would insure the mortgaged property, and Hurricane Marilyn impaired the Spinks' security by driving the value of the property below the outstanding balance on the mortgage, the plaintiffs are entitled to the insurance proceeds because the mortgage does not provide otherwise. Further, the Special Multi–Peril Conditions and Definitions section of the policy provides, “[l]oss to buildings shall be payable to the named mortgagee as interest may appear.” (Pl.'s Mem. of P. & A. at 2.) As the named mortgagees, the Spinks should have received the insurance proceeds.
General Accident does not dispute this conclusion. Rather, it asserts that the suit limitations provision present in MMC's policy bars the Spinks' claim. That clause states that “[n]o suit shall be brought on this policy unless the insured ... has commenced the suit within one year after the loss occurs.” (Pl.'s Mot. for Summ. J., Ex. A, at 1.) Such one-year suit limitations clauses are generally enforceable in the Virgin Islands. See22 V.I.C. § 820(a)(3) ().
The suit limitations provision applies to the Spinks, even though MMC's policy designates them as loss payees, not “insureds.” At first glance, the plaintiffs appear to be third-party creditor beneficiaries whose claim to insurance proceeds depends on the mortgagor's own right to payment. SeeCOUCH ON INSURANCE 3D § 65:22 (1996 & Supp.1998) (“[A] mortgage loss-payable clause ... does not make the mortgagee an assignee of the policy, but merely an appointee to collect the insurance; consequently, the mortgagee must claim in the right of the insured.”) Logically, any limit on MMC's right to sue the insurer would apply to its third-party beneficiaries as well.
Closer scrutiny of MMC's policy reveals that the Spinks are not third-party beneficiaries. The policy contains the following proviso, commonly termed a “standard” mortgage clause:
As it applies to the interest of any mortgagee designated in the Declarations, this insurance shall not be affected by any of the following:
(a) any act or neglect of the mortgagor or owner of the described buildings;
(b) any foreclosure or other proceedings or notice of sale relating to the property;
....
(d) occupancy of the premises for purposes more hazardous than are permitted by this policy;
....
When the Company shall pay the mortgagee any sum for loss under this policy ... the Company shall, to the extent of such payment, be thereupon legally subrogated to all of the rights of the mortgagee to whom such payment shall have been made, under the mortgage debt.
(Pl.'s Mem. of P. & A. at 5.) As explained by one court, “the standard clause expressly protects the mortgagee against mortgagor's misdeeds ... and subrogates the Company to the mortgagee's rights versus the mortgagor when payment is made to the mortgagee.” Conner v. Northwestern Nat'l Cas. Co., 774 P.2d 1055, 1056 (Okla.1989) (citation omitted). The prevailing view among American jurists and commentators is that this provision creates a separate contract between the mortgagee and the insurance company, dissolving the third-party beneficiary relationship between mortgagee and mortgagor by insulating the former's rights from the latter's actions.7 The Court adopts this view as territorial law under its statutory power to discern and apply “the common law as generally understood and applied in the United States.” See1 V.I.C. § 4.
The Spinks are “insureds” under a separate contract of insurance with General Accident created by the standard mortgage clause. Contrary to the plaintiffs' contention, however, this contract incorporates terms from MMC's...
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