Case Title: Alabama Farm Bureau Insurance Co. v. McCurry

Citation: 336 So. 2d 1109

Docket Number: 

State: alabama

Court: Alabama Supreme Court

Date: 1976-08-13T00:00:00Z

Document:
336 So. 2d 1109 (1976)
ALABAMA FARM BUREAU INSURANCE COMPANY
v.
Terry McCURRY et al.
SC 1599.

Supreme Court of Alabama.
August 13, 1976.
Rehearing Denied September 17, 1976.
*1110 Hill, Hill, Carter, Franco, Cole & Black, John M. Milling, Jr., and J. Thaddeus Salmon, Montgomery, for appellant.
Wilson, Propst & Isom, Anniston, for appellees Terry McCurry and Sandra McCurry.
C. William Gladden, Jr., Birmingham, for appellee, Auto-Owners Ins. Co.
SHORES, Justice.
The facts out of which this litigation arose are largely undisputed. The McCurrys bought two lots and built a house on them. They obtained a construction loan from the First National Bank of Piedmont and secured the loan by a mortgage on the property. They also obtained insurance from Farm Bureau, which issued a policy in the amount of $20,000 to the McCurrys and the First National Bank as mortgagee, with an effective date of December 1, 1973, through December 1, 1974.
After the house was completed, but before the McCurrys moved in and before the loan for permanent financing was closed, they insured the property for $36,000 with Auto-Owners Insurance Company. The Auto-Owners policy was issued April 15, 1974. On May 1, 1974, at approximately 2:00 p. m., McCurry called the local office of Farm Bureau and advised that he had procured other insurance and wished to cancel the Farm Bureau policy. The insured premises were totally destroyed by fire some five hours after this call, at around 7:30 p. m., May 1, 1974.
On May 10, 1974, after notice of the fire, Farm Bureau wrote the McCurrys a letter stating that the Farm Bureau policy had been cancelled as of May 1 and enclosed a check for premium refund from May 1 to the end of the policy period. The McCurrys refused the refund.
Thereafter, the McCurrys made demand on both Farm Bureau and Auto-Owners for payment of the loss. Auto-Owners agreed to pay a part of the loss, $22,254.65, the amount of the mortgage debt due the First National Bank, although it was not the mortgage payee under the Auto-Owners policy. Collateral Investment Company was the named mortgagee under the Auto-Owners policy, but it never closed the permanent loan with the McCurrys. The McCurrys used this amount to pay the mortgage debt to First National and in return received from First National an assignment of its rights under the Farm Bureau policy.
The McCurrys then filed a bill for declaratory judgment against Farm Bureau and Auto-Owners asking the court either to require *1111 Auto-Owners to pay the full amount of its policy or, alternatively, to require both companies to pay their respective pro rata share of the loss. Farm Bureau denied any liability and Auto-Owners denied any more than its pro rata share, contending that Farm Bureau should pay its pro rata share.
After hearing the evidence, the trial court found that both policies were in effect at the time of the loss; that the Farm Bureau policy could not be cancelled before 2:01 p. m. on May 2, 1974; that the "other insurance" provision of the Farm Bureau policy was ineffective under the facts of this case; that both policies contained a "pro rata" clause, and ordered Auto-Owners to pay the McCurrys $24,600 (against which it was granted a credit of $22,254.65 already paid) and Farm Bureau to pay $13,860.
Farm Bureau appealed and raises the same issues here as it relied upon below:
The "other insurance" defense. Farm Bureau argues that the trial court erred in not granting its motion to dismiss and motion for summary judgment, since it is not disputed that the McCurrys had other insurance at the time of the fire. The Farm Bureau policy contains the following provision:
It is Farm Bureau's contention that coverage under its policy was automatically suspended when the Auto-Owners policy became effective. This result is compelled, argues Farm Bureau, if the quoted provision is to have any meaning. We cannot agree. It is true that such provisions have frequently been held valid. But one must look to the reasoning behind the inclusion of such provisions in insurance policies to find the reason why courts, in appropriate cases, have upheld them. The basic purpose of such provisions is to check fraud. It was recognized very early that unlimited property insurance could serve as an inducement to an insured to destroy his own property to his profit.
As early as 1917, this court recognized the reason for the provisions limiting one's ability to overinsure and said in Insurance Company of North America v. Williams, 200 Ala. 681, 683, 77 So. 159, 161 (1917):
We think that statement is still sound, but do not agree that procuring additional insurance with no intent to defraud automatically suspends coverage as Farm Bureau asserts.
In Home Insurance Company v. Shriner, 235 Ala. 165, 177 So. 890 (1937), this court refused to hold that such a provision defeated coverage where there was no evidence of a fraudulent intent on the part of the insured in procuring other insurance. There, the court said:
There was no evidence that the McCurrys intended to defraud either Farm Bureau or Auto-Owners in this case. The trial court so found. But there are additional reasons *1112 why Farm Bureau cannot prevail in its argument. First, the policy issued by Farm Bureau extended protection to the First National Bank of Piedmont as mortgagee of the property, and provided:
If no act of the owner (McCurry) can invalidate the coverage extended to the mortgagee (First National Bank of Piedmont) by the policy, it follows that the owners' procurement of other insurance cannot have this effect.
Secondly, the Farm Bureau policy contained the following provision:
This provision, when read with the prohibition against other insurance, creates an ambiguity which must be resolved against the insurer. American Insurance Company v. Newberry, 215 Ala. 587, 112 So. 195 (1927).
Farm Bureau next argues that if its policy was not cancelled by virtue of the other insurance provision, it was cancelled by McCurry himself on May 1. The trial court, after hearing the evidence, determined that the policy had not been cancelled by McCurry. We agree. Indeed, under the terms of the policy, McCurry could not cancel the coverage extending to the mortgagee. Additionally, the cancellation provisions of the policy were not complied with. The policy specifies the methods by which it can be cancelled.
Farm Bureau concedes that these provisions were not complied with but contends that the policy could be cancelled by other methods. It is true that the method of cancellation provided for in a policy of insurance is not necessarily exclusive and that the parties to such a policy may mutually agree to cancellation by other means. Such a procedure must be mutually agreed upon. 29 Am.Jur.2d, Insurance, § 408, et seq. Whether there is such assent is a question of fact. The trial court, in the instant case, determined that there was no cancellation. We cannot conclude that the trial court was wrong in this determination.
Lastly, Farm Bureau contends that the McCurrys cannot pursue the proceeds of the policy under the assignment from the First National Bank of Piedmont. It contends that the assignment is void because, since the mortgage was paid, they ". . cannot thereafter take an assignment of a debt and mortgage that no longer exists." The McCurrys are not attempting to collect a debt and mortgage that have been paid. They are attempting to enforce the rights of the First National Bank under the Farm Bureau policy. The assignment recites in part:
The bank was a named insured under the policy, which covered the interests of the owners and the mortgagee. The bank was a named loss payee under the policy. In fact, since the mortgage debt exceeded the policy amount, it was, as a practical matter, *1113 the sole loss payee at the time of the loss. It, therefore, had a valid claim under the policy which is assignable. In 43 Am. Jur.2d, Insurance, § 689, the rule is stated as follows:
We find no error to reverse. Therefore, the judgment of the trial court is affirmed.
AFFIRMED.
MADDOX, JONES, EMBRY and BEATTY, JJ., concur.