U.S. Bank Nat. Ass'n v. Safeguard Ins. Co.

• Decision Date: 04 January 2006
• Docket Number: No. 3:04-CV-2102-D.,3:04-CV-2102-D.
• Citation: 422 F.Supp.2d 698
• Parties: U.S. BANK NATIONAL ASSOCIATION (Successor in Interest to State Street Bank & Trust Company), as Trustee for the Registered Holders of BTC Commercial Mortgage Pass-Through Certificates, Series BTR Trust 1991-S1, Acting by and Through its Special Servicer, GMAC Commercial Mortgage Corporation, Plaintiff, v. SAFEGUARD INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Texas

422 F.Supp.2d 698

U.S. BANK NATIONAL ASSOCIATION (Successor in Interest to State Street Bank & Trust Company), as Trustee for the Registered Holders of BTC Commercial Mortgage Pass-Through Certificates, Series BTR Trust 1991-S1, Acting by and Through its Special Servicer, GMAC Commercial Mortgage Corporation, Plaintiff, v.SAFEGUARD INSURANCE COMPANY, Defendant.

No. 3:04-CV-2102-D.

United States District Court, N.D. Texas, Dallas Division.

January 4, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Randall R. Kucera, Sara Jl Wahl, Akin Gump Strauss Hauer & Feld, Dallas, TX, for Plaintiff.

Daniel E. Pellar, Beirne Maynard & Parsons, Dallas, TX, Stephen R. Wedemeyer, Beirne Maynard & Parsons, Houston, TX, Dwayne J. Hermes, Hermes Sargent Bates, Dallas, TX, for Defendant.

MEMORANDUM OPINION AND ORDER

FITZWATER, District Judge.

In this property insurance coverage dispute, the assignee of a mortgagee moves for partial summary judgment against an insurer, seeking to establish under the Texas equitable lien doctrine that it should be treated as if it were an additional insured and loss payee.The principal question the court must decide is whether the assignee has established beyond peradventure that there is a deficiency owed on the indebtedness on the insured properties so that the assignee is entitled to recover insurance proceeds.Concluding that the assignee has met its summary judgment burden, the court grants the motion.

I

This is a removed action in which plaintiffU.S. Bank National Association(successor in interest to State Street Bank & Trust Company), as Trustee for the Registered Holders of BTC Commercial Mortgage Pass-Through Certificates, Series BTR Trust 1991-S1, acting by and through its special servicer, GMAC Commercial Mortgage Corporation("U.S. Bank"), sues defendantSafeguard Insurance Co.("Safeguard") for breach of contract, breach of duty of good faith and fair dealing, violations of the Texas Insurance Code, and promissory estoppel arising from Safeguard's refusal to cover damage to properties in which U.S. Bank held a mortgage interest.¹In 1998 Triad Dallas Properties IV, Ltd.("Triad") borrowed $45.5 million from Bankers Trust Company("Bankers") to purchase real estate.²Triad executed a promissory note payable to Bankers and a deed of trust, security agreement, and assignment of leases and rents, fixture filing, and financing statement in Bankers' favor.The deed of trust covered four properties in or near Dallas, Texas, and there was no separate value assigned to each individual property.The properties are known as the Belvedere, the Atrium at Bent Tree ("Atrium"),³ the Courtyard at Arapaho ("Courtyard"), and Fairway Plaza ("Fairway").Bankers later assigned the deed of trust to U.S. Bank.⁴GMAC Commercial Mortgage Corporation("GMAC") serviced the mortgage for U.S. Bank.A provision of the deed of trust required Triad to maintain property insurance on the mortgaged property.It also required that the insurance policy contain a mortgagee clause or loss payee endorsement for the benefit of Bankers (U.S. Bank's predecessor), the mortgagee.⁵

Safeguard provided insurance coverage for Triad's properties.Triad obtained insurance through Hilb, Rogal & Hamilton Company of Alabama ("HRH"), an insurance agent.The policy relevant to this litigation was for the period November 1, 2002 to November 1, 2003 and insured the Triad properties as a single unit compromised of the four individual properties.The policy listed Triad as the named insured.Contrary to the deed of trust provision that required that insurance policies contain a mortgagee clause or loss payee endorsement, and despite the fact that Bankers itself had paid the premium for the 2002-03 policy, the policy neither identified Bankers as an additional insured nor contained a mortgagee clause.⁶

In the spring of 2003 hailstorms damaged skylights and air conditioner coils at Atrium and damaged the roof and air conditioner units at Courtyard.Soon thereafter, U.S. Bank deemed Triad to have defaulted on its obligations under the financing arrangement,⁷ it foreclosed on Atrium, Courtyard, and Belvedere, and it purchased the properties for $27 million at foreclosure on July 1, 2003.In the substitute deed of trust and bill of sale, the parties agreed that the lien and security interest of the deed of trust remained in full force and effect as to the fourth secured property (Fairway), which was not part of the foreclosure proceedings.The original deed of trust provided that, in the event of a partial sale of the mortgaged property where the proceeds amounted to less than the aggregate secured indebtedness, the deed of trust and lien remained in full force and effect as to the unsold portions of the four Triad properties, as if no sale had been made.

On the same day that U.S. Bank purchased the properties at foreclosure, it also sued Triad in Texas state court for breach of contract, alleging that Triad had defaulted on its payment obligations under the promissory note and deed of trust.⁸U.S. Bank, also obtained an order placing Fairway in receivership.

Later in 2003 Courtyard's property manager submitted a property loss notice to HRH concerning the hailstorm.She separately mailed to Safeguard's counsel a copy of the substitute trustee's deed and bill of sale and notice of substitute trustee's sale.Her cover letter noted that she had enclosed documents pertaining to the ownership and foreclosure of Courtyard.Also in 2003 Atrium's property manager filed a property loss notice for damage sustained in the hailstorm.She faxed the notice to HRH and included on the coversheet a note that advised that "any claim checks representing proceeds for repairs at [Atrium] due to hail damage[ ] should be made payable to [Triad] and [GMAC]."P.App. 263.Safeguard refused to pay insurance proceeds to U.S. Bank through GMAC, contending that U.S. Bank was not a party to the insurance policy and was not an insured party under the policy.U.S. Bank responded by filing the instant lawsuit against Safeguard in Texas state court, which Safeguard removed to this court based on diversity of citizenship.

In February 2005 the state court presiding over U.S. Bank's lawsuit against Triad granted summary judgment in U.S. Bank's favor on its breach of contract claim.⁹The court determined that Triad owes U.S. Bank approximately $22 million.The judgment provides that U.S. Bank may execute on the judgment against all property that secures the note and deed of trust, including Fairway.

In the instant suit, U.S. Bank moves for partial summary judgment, contending that the Texas equitable lien doctrine compels Safeguard to treat U.S. Bank as if it were listed as an additional named insured and loss payee on the policy and that the policy provides coverage to U.S. Bank as if it were.¹⁰Safeguard opposes the motion, arguing that the equitable lien doctrine is inapplicable because there is no deficiency remaining on the loan as to Atrium and Courtyard (the two damaged properties), the case is not ripe, and a litany of equitable doctrines, e.g., estoppel, preclude U.S. Bank's reliance on the Texas equitable lien doctrine.¹¹

II

The equitable lien doctrine provides that, where "a mortgagor is charged with the duty of obtaining insurance on a property with loss payable to the mortgagee but the policy does not contain such a provision, equity will treat the policy as having contained the loss payable provision and entitle the mortgagee to recover under the policy."Beneficial Standard Life Ins. Co. v. Trinity Nat'l Bank,763 S.W.2d 52, 55(Tex.App.1988, writ denied).¹²

It has been held many times by the courts of this state and practically every other state in this country that an agreement between a mortgagor and a mortgagee under which the mortgagor is charged with the duty of procuring insurance upon the mortgaged property for the benefit of the mortgagee, will encumber the proceeds of any insurance so procured by the mortgagor with a lien in favor of the mortgagee.In such cases it is the duty of the mortgagor to have a provision inserted in the policy that the proceeds shall be payable to the mortgagee as his interest might appear but, where he fails to do so, equity will treat the policy as having contained such a provision upon the principle that equity treats that as done which should have been done.Of course, if the insurer is not informed of such an agreement, it is not bound thereby, but after the information is given to it, the duty rests upon the insurer to treat the proceeds of the policy as though such a provision was written into the policy.

Fid. & Guar. Ins. Corp. v. Super-Cold S.W. Co.,225 S.W.2d 924, 927(Tex.App.1949, writ ref'd n.r.e.).

The equitable lien doctrine, however, does not treat the mortgagee and mortgagor as indistinctive entities.Rather, it operates to the extent necessary to preserve the mortgagee's interest.The purpose of the mortgagee clause in an insurance policy is to protect the lender who has lent money for the purchase of property.SeeFireman's Fund Ins. Co. of Tex. v. Jackson Hill Marina, Inc.,704 S.W.2d 131, 136(Tex.App.1986, writ ref'd n.r.e.)."Accordingly, when a mortgagee reduces the indebtedness by purchasing property at a foreclosure sale, the amount of the mortgagee's interest is limited to the amount of the deficiency remaining on the note after the sale."Id.;see alsoSmith v. Tex. Farmers Ins. Co.,82 S.W.3d 580, 584-85(Tex.App.2002, pet.denied)(observing that mortgagee's interest is limited to indebtedness mortgagor owes);Beneficial Standard,763 S.W.2d at 55(holding that because lender had obtained satisfaction of loan through proceeds of foreclosure sale, lender was not entitled to any additional payment from insurance proceeds through equitable lien doctrine).Safeguard does not contest that Triad agreed to obtain insurance for Bankers' benefit or that Safeguard had notice of...