Vargas v. Nautilus Ins. Co.

• Decision Date: 24 May 1991
• Docket Number: No. 65423,65423
• Citation: 811 P.2d 868,248 Kan. 881
• Parties: Thomas Robert VARGAS, formerly d/b/a Robert's Body Shop and Sales, and Peoples National Bank, Appellants, v. NAUTILUS INSURANCE COMPANY, a foreign corporation, Chris-Leef General Agency, and Bud Hamm Insurance & Real Estate, Inc., Appellees.
• Court: Kansas Supreme Court

Page 868

811 P.2d 868

248 Kan. 881

Thomas Robert VARGAS, formerly d/b/a Robert's Body Shop and Sales, and Peoples National Bank, Appellants, v. NAUTILUS INSURANCE COMPANY, a foreign corporation Chris-Leef General Agency, and Bud Hamm Insurance & Real Estate, Inc., Appellees.

No. 65423.

Supreme Court of Kansas.

May 24, 1991.

Syllabus by the Court

1. A mortgage clause in an insurance policy creates a separate contract between the mortgagee and the insurer.

2. A loss payee clause is interpreted differently than a mortgage clause. A loss payee clause merely stipulates that proceeds from a policy will be payable to the named payee, but does not create a contract between the named payee and the insurer. The named payee must stand in the shoes of the insured and has no rights independent of the insured's rights. The payee is barred from recovery if the insured is barred.

3. When an insurance carrier issues a valid insurance contract that is subsequently cancelled for nonpayment of premiums and the insurer and insured agree that the policy will be reinstated without lapse if the premium is paid by a certain date and the premium is paid pursuant to the agreement, the insurer bears the risk for any loss that occurs prior to the premium being paid.

Rex A. Sharp, Liberal, argued the cause and was on the briefs, for appellant Vargas.

Richard R. Yoxall, of Yoxall, Antrim & Yoxall, Liberal, argued the cause and was on the brief, for appellant Peoples Nat. Bank.

William J. Gotfredson, of Knipmeyer, McCann, Smith, Manz & Gotfredson, Kansas City, Mo., argued the cause, and Michael T. Halloran, of the same firm, was with him on the brief, for appellee Nautilus Ins. Co.

Steven G. Piland, of Field, Gentry, Benjamin & Robertson, P.C., Overland Park, argued the cause, and Lee M. Baty, of the same firm, was with him on the brief, for appellee Chris-Leef General Agency.

David J. Morgan, of Hershberger, Patterson, Jones & Roth, Wichita, argued the cause and was on the brief, for appellee Bud Hamm Ins. & Real Estate, Inc.

ABBOTT, Justice:

The plaintiffs, Thomas Robert Vargas, and Peoples National Bank (Bank), appeal from summary judgment granted in favor of Nautilus Insurance Company (Nautilus), Chris-Leef General Agency (Chris-Leef), and Bud Hamm Insurance & Real Estate, Inc., (Hamm). At issue is whether an insurance policy on a building and its contents was in force on the date the building and contents were destroyed by fire. Also at issue is the Bank's status under the policy.

Vargas owned Robert's Body Shop. The Bank had an insurable interest both in the building containing the body shop and in part of its contents. Vargas purchased an insurance policy from Nautilus in February 1987. The insurance policy was purchased through a local agent, Hamm. The policy was brokered through Chris-Leef. The Nautilus policy was obtained through a premium-financing agreement in which Premium Finance Specialists (PFS) paid the annual premium to Nautilus in exchange for a down payment and monthly payments from Vargas. Vargas failed to make timely payments and Chris-Leef sent a notice of cancellation to him. The cancellation was effective April 24, 1987.

The parties agree that Chris-Leef, on behalf of Nautilus, agreed to reinstate the policy without lapse if PFS received a check for the past-due premium by April 29, 1987. The defendants contend the agreement was that Vargas was to mail a check to PFS by April 27, 1987, which had to be received by PFS by April 29, 1987. Vargas filed an affidavit denying the agreement was that the check had to be mailed by April 27, 1987.

On the morning of April 29, 1987, the building and contents were destroyed by fire. With full knowledge that the premises and contents had been destroyed, Vargas took a check for the past-due premium to Hamm's office. On advice of Mr. Puckett of Hamm, Vargas wired the premium payment by Western Union so that it was received by PFS on April 29, 1987. The policy was then reinstated "effective 12:01 a.m., 4/24/87, with no lapse in coverage." When Nautilus learned of the loss, it denied coverage.

Vargas and the Bank filed suit. The Bank alleged that it had an insurable interest in the building arising from the contract for sale between the Bank as seller and Vargas as buyer and that the Bank was a loss payee on the Nautilus policy.

All defendants filed answers. Nautilus asserted a cross-claim against Hamm. Discovery proceeded and motions for summary judgment were filed by each of the parties.

The trial court granted summary judgment and explained his judgment, in pertinent part, as follows:

"On the morning of April 29th, 1987, the plaintiff's 'Robert's Body Shop' was destroyed by fire, which was the insured premises. Subsequent to the fire, the plaintiff went to the defendant Hamm's office with a check for the past-due premiums. Upon the advice of Mr. Puckett of that agency, plaintiff wired the premium payment by Western Union so that it was received by Premium Financing Specialists, who was financing the policy, on April the 29th. The defendant Nautilus then reinstated the policy dated April the 24th, 1987. The reinstatement endorsement checked the phrase 'the policy is reinstated effective 12:01 a.m., 4-24-87, with no lapse in coverage'. This form had blanks allowing for reinstatement with a lapse between the cancellation date and the reinstatement date, and also another which was 'subject to the named insured's warranty that there have not been any claims between the cancellation date and "blank", being the date of the policy'.

"The plaintiff's contention is that by accepting the premium payment on the date previously agreed in issuing the reinstatement policy to the previous date, that the insurance company is bound by the express terms of the written instruments.

"The defendants contend that it was simply a case of one purchasing insurance while knowing that the insured premises were destroyed and concealing this fact from the insurer. The defendants rely on Matlock v. Hollis, 153 Kan. 227, 109 P.2d 119, which states that if an insured 'applies for insurance knowing that the building has already been destroyed by fire, conceals the fact of the prior loss and secures a policy antedated to cover the time of the loss, the policy is void and no liability ever attaches'.

"According to the court:

" 'While insurance contracts are not technically wagering contracts, an applicant for insurance stakes his premium payment on the chance that there will be a loss. By the same token, the insurance carrier takes a chance--the heavy odds being represented by the face of the policy as against the premium--that there will be no loss. If the applicant knows his house has already burned down, he is taking no chance, and the policy is not merely voidable, but is void. The implied condition, requisite to the contract, is absent. Id.'

"The Court finds that defendant Nautilus Insurance Company is correct in application of the law to the relevant undisputed facts recited herein, and adopts said defendant's briefs herein as this Court's findings and conclusions of law herein.

"Because the plaintiff's claim relies on its claim versus Nautilus, the remaining defendants' motions to dismiss are sustained. It is unnecessary under this conclusion of the case to determine the other issues raised as to agency, possible dual agency and choice of law questions."

As we view the trial court's reasoning, it held the property was destroyed prior to the policy being reinstated and, under Kansas law, the policy is void. The trial court then concluded that all of Vargas' claims (including the Bank's) were dependent upon his claim against Nautilus and granted summary judgment on the remaining defendants' motions.

We hold that the trial court erred in granting summary judgment for a number of reasons.

There is one clear unambiguous piece of evidence to show the agreement reached on reinstatement of the policy and that is the reinstatement endorsement itself. It contains three options for the insurer to check: reinstatement with no lapse, reinstatement with a lapse between the cancellation date and the reinstatement date, and reinstatement subject to the named insured's warranty that there have not been any claims during the lapse. The first option, reinstatement with no lapse, is checked and the policy was reinstated effective April 24, 1987.

The trial court relied, apparently, on Matlock v. Hollis, 153 Kan. 227, 109 P.2d 119 (1941), in holding that the fire was not covered. In Matlock, this court was presented with the question of whether an employee can recover compensation from a workers compensation insurance company for an injury received prior to the application of an antedated policy, with the fact of such injury having been fraudulently concealed by the employer when the application was made. This court held that a policy so obtained was void ab initio and could not confer upon the employee a right to recover because no insurance policy was in force when the injury occurred. 153 Kan. 227, Syl. p 2, 109 P.2d 119.

Matlock presents a different issue. Here, a policy had been in force. It was cancelled. There was an offer by the company to reinstate the policy with no lapse. For the insurance company, reinstating with no lapse has obvious benefits: It does not have to go to the expense of issuing a new policy and it gets the premiums...