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AETNA STATE BANK v. MARYLAND CASUALTY COMPANY

June 2, 1972

AETNA STATE BANK, PLAINTIFF,
v.
MARYLAND CASUALTY COMPANY ET AL., DEFENDANTS.



The opinion of the court was delivered by: Marovitz, District Judge.

MEMORANDUM OPINION

CROSS-MOTIONS FOR SUMMARY JUDGMENT

This is an action by a mortgagee (AETNA) against six insurance companies who each issued an insurance policy in the face amount of $50,000.00 on certain buildings and property owned by the mortgagor-insured (GARCY) covering the period April 1, 1970 to April 1, 1971. AETNA was named as mortgagee on the first page of each policy as well as in the "Standard Mortgage Clause" contained in each policy. The policies covered direct loss by fire, among other things.

On July 6, 1970 a fire occurred at the insured location. Had the foregoing been the sum total of the relevant facts there would be no question that AETNA, as mortgagee under a "Standard Mortgage Clause" would be entitled to the proceeds of the policies. But there are several factors in this case that inject a complexity not present in the usual mortgagee case.

According to the stipulated facts GARCY, the mortgagor, entered into a written contract under which the entire complex of buildings at the insured location were to be demolished with all salvage from the wrecking belonging to the wrecking company. The fire occurred after the wreckers had already entered the premises and had started their work. In addition, the Rollins Burdick Hunter Company, the duly authorized agent of the six defendant insurance companies as well as the insurance broker for the mortgagor were notified by the mortgagor that the wreckers would be entering the premises and that the policies may be cancelled. AETNA, however, did not notify the insurance companies that the wrecking was to take place and AETNA did not receive notice from the insurance companies that the policies were to be cancelled.

There are basically four issues which must be determined, three regarding liability as such and the fourth regarding the amount of liability assuming that the defendants are liable on the policies. These issues are before us on cross-motions for summary judgment.

The defendants raise the defenses that 1) the policies were cancelled at the request of the insured; 2) the plaintiff failed to notify defendants of the wrecking contract and partial wrecking thereunder prior to the fire thereby rendering the policies null and void; 3) that assuming, arguendo liability, there was no value recoverable by either the insured or the plaintiff since the insured buildings were abandoned to the wrecker.

I.

In regard to the first point it does seem that the mortgagor, GARCY, did request the cancellation of the policies but this request in itself is not dispositive of the issue. Defendants recite the standard provision in the policies regarding cancellation at lines 56 through 60 of the form policy:

"CANCELLATION OF POLICY.

  This policy shall be cancelled at any time at the
  request of the insured, in which case this
  Company shall, upon demand and surrender of this
  policy, refund the excess of paid premium above
  the customary short rates for the expired time."

Given the presence of a mortgagee in this case the cancellation provision as it appears in the form policy cannot be read in isolation but must be interpreted in light of the accompanying provisions in the "Standard Mortgage Clause". The "Standard Mortgage Clause" provides in part that:

    Loss or damage, if any, under this policy shall
  be payable to the mortgagee [or trustee], named
  on the first page of this policy, as interest may
  appear, and this insurance as to the interest of
  the mortgagee [or trustee] only therein, shall
  not be invalidated by any act or neglect of the
  mortgagor or owner of the within described
  property, nor by any foreclosure or other
  proceedings or notice of sale relating to the
  property, nor by any change in the title or
  ownership of the property, nor by the occupation
  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
  [or trustee] shall, on demand, pay the same.

It is abundantly clear from the cases and treatises that under a "Standard Mortgage Clause" insurance policy a mortgagor cannot request the cancelling of the policy without the consent of the mortgagee. The requirement of the mortgagee's acquiescence in cancellation is an entirely logical one given the vested interest he has in the protection of the property and the loss he stands to bear should the property be destroyed.

Given the independent nature of the insurance company's relationship to the mortgagee the phrase in the mortgage clause which states that "this insurance as to the interest of the mortgagee [or trustee] only therein, shall not be invalidated by any act or neglect of the mortgagor . . ." has therefore been interpreted to bar the "act" of cancellation by the mortgagor without consent of the mortgagee. See B X Corporation v. Aetna Ins. Co., 187 Misc. 806, 63 N.Y.S.2d 14; Employers' Fire Insurance Co. v. Pennsylvania Millers Mutual Insurance Company, et al., 116 Ga. App. 433, 157 S.E.2d 807; Lauman, et al. v. Springfield Fire & Marine Ins. Co., 184 Cal. 650, 195 P. 50. See also 5 Appleman: Insurance Law & Practice § 3401; 11 Couch on Insurance 2d §§ 42:685, 42:694, 42:714. The fact that the form ...


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