Wholesale Sports Warehouse Co. v. Pekin Ins. Co., Civ. No. 81-26-D-1.

• Citation: 587 F. Supp. 916
• Decision Date: 22 June 1984
• Docket Number: Civ. No. 81-26-D-1.
• Parties: WHOLESALE SPORTS WAREHOUSE COMPANY, Plaintiff, v. PEKIN INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Iowa

587 F. Supp. 916

WHOLESALE SPORTS WAREHOUSE COMPANY, Plaintiff, v. PEKIN INSURANCE COMPANY, Defendant.

Civ. No. 81-26-D-1.

United States District Court, S.D. Iowa, Davenport Division.

June 22, 1984.

Craig D. Warner, Burlington, Iowa, for plaintiff.

Raymond T. Walton and Michael K. Bush, Heninger & Heninger, Davenport, Iowa, for defendant.

RULING AND ORDER ON MOTIONS FOR SUMMARY JUDGMENT

STUART, Chief Judge.

The Court has before it defendant's renewed motion for partial summary judgment on Count I, filed February 23, 1984, and defendant's March 14, 1984, motion for summary judgment on Count III of the amended complaint. Both motions have been resisted and came on for hearing on May 18, 1984.

Count I

In an Order filed February 27, 1984, denying defendant's prior motion for partial summary judgment on Count I, the Court noted that defendant had made no attempt to show that the consequential damages claimed by plaintiff were not within the contemplation of the parties at the time they made the contract for insurance. On its renewed motion, defendant attempts to make such a showing. Although the Court has doubts about plaintiff's ability to prevail on its consequential damages claim at trial, especially in light of the policy's express exclusion of such damages, the Court does not believe the matter is so clear as to permit the entry of summary judgment at this time. If the question of consequential damages goes to the jury, however, it will be submitted on special interrogatories. Then, if the jury awards such damages to plaintiff and if the Court determines upon post-trial motion that such damages were not permissible under the evidence, the Court can so rule.

Count III

In Count III of the amended complaint, which is pleaded in the alternative to Count I, plaintiff alleges that Farmers and Merchants Bank had a secured lien against approximately $104,000 worth of inventory which was damaged in a fire at plaintiff's business premises, and that the lien secured plaintiff's debt to the bank which amounted to about $113,000 on the date of the fire. Plaintiff further alleges that, pursuant to a policy provision giving the bank the right to recover as mortgagee under the policy, defendant paid the bank only about $66,000 (plus interest), whereas the bank should have received the full $104,000 from defendant. Plaintiff seeks an adjudication "that the policy of insurance between plaintiff and defendant affords coverage, without application of affirmative defenses, to Farmers & Merchants Bank as `mortgagee' of plaintiff's property which was damaged or destroyed in said fire against which it had a secured interest," along with judgment against defendant for approximately $38,000, the difference between the amount defendant paid to the bank and the amount plaintiff claims defendant should have paid to the bank. Plaintiff alleges that it has assigned its net recovery in this lawsuit to the bank, and asks that the $38,000 judgment, plus interest, be paid by defendant into a fund to be held by the clerk of this court pending further adjudication between plaintiff and the bank.

Defendant contends in its motion for summary judgment that even assuming the bank was entitled to more than what defendant paid it (which defendant denies), plaintiff cannot obtain a judgment for the difference without regard to affirmative defenses as it seeks to do in Count III. Defendant does not dispute that it would be liable to plaintiff under Count I for the difference between the proven loss and the amount paid to the bank if defendant is unable to prove any of its affirmative defenses.

Neither party has specifically pointed out the policy provision pursuant to which defendant was obligated to pay the bank for its loss. The Court has therefore scrutinized the insurance policy and discerns only one provision which appears to make any type of loss payable to a mortgagee. That provision, which appears on page 3 of Form MP-4, states in pertinent part:

19. Mortgage Clause — Applicable Only to Buildings. This clause is effective if a mortgagee is named in the Declarations. The word "mortgagee" includes "trustee". Loss to buildings shall be payable to the named mortgagee as interest may appear under all present or future mortgages on the buildings described in the Declarations in order of precedence of mortgages on them.

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;

(c) any change in the title or ownership of the property;

(d) occupancy of the premises for purposes more hazardous than are permitted by this policy;

provided that in case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee shall, on demand, pay the premium.

. . . . .

When the Company shall pay the mortgagee any sum for loss under this policy, and shall claim that, as to the mortgagor or owner, no liability therefor existed, the Company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the mortgagee to whom such payment shall have been made, under the mortgage debt. In lieu of taking such subrogation, the Company may, at its option, pay to the mortgagee the whole principal due or to grow due on the mortgage, with interest accrued and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities. However, no subrogation shall impair the right of the mortgagee to recover the full amount of said mortgagee's claim.

Why defendant made payment to the bank for destroyed inventory pursuant to this provision, which on its face appears to apply only to loss to buildings, has not been explained. However, as there is no other policy provision which is even remotely applicable, it must be assumed that defendant for some reason chose not to enforce the "loss to buildings" limitation of this loss payable clause, or was estopped from doing so. For purposes of this motion, the Court will assume that the foregoing provision gave the bank the right to be paid by defendant for the approximately $104,000 worth of damaged or destroyed inventory which was subject to its lien.

Plaintiff relies primarily on Foshee v. Lloyds, 619 F.2d 1104 (5th Cir.1980) (applying Alabama law), to support a cause of action of the type alleged in Count III. The Court agrees with defendant that Foshee does not aid plaintiff. The key issue in the case at bar — whether the mortgagor can sue the insurer without regard to affirmative defenses for the difference between the amount paid to the mortgagee and the amount to which the mortgagee was entitled — is simply not addressed in Foshee. Although the insurer in Foshee had previously raised the possibility of an arson or fraud defense, such defenses were never actually asserted and the primary issue at trial was the amount of the loss. Foshee supports the claim asserted by plaintiff in its own right under Count I, but there is nothing in that case which suggests that the mortgagor may derivatively assert the same rights as the mortgagee, as plaintiff seeks to do in Count III. In fact, Foshee clearly states that "in the case of a settlement with the mortgagee that does not discharge the mortgagor's debt, ... the mortgagee's interest is defined by the stipulation of settlement."...