Title: Nationwide Mutual Fire Insurance Co. v Gamelin

State: vermont

Issuer: Vermont Supreme Court

Document:

Nationwide Mutual Fire Insurance Co. v. Gamelin (2000-531); 173 Vt. 45; 
786 A.2d 1078

[Filed 21-Sep-2001]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal  revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of  Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any  errors in order that corrections may be made before this opinion goes
  to press.

                                No. 2000-531

Nationwide Mutual Fire Insurance Company	 Supreme Court

                                                 On Appeal from
                                                 Chittenden Superior Court
     v.	

G. Thomas Gamelin, Jr.	                         May Term, 2001

Matthew I. Katz, J.

Todd C. Hartsuff of Spokes Foley P.L.C., Burlington, for Appellant.

Paul R. Bowles of Hill, Unsworth, Barra & Bowles, P.L.C., Montpelier, for 
  Appellee.

PRESENT:  Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.

       DOOLEY, J.   This is a mortgage foreclosure action in which defendant,
  G. Thomas  Gamelin, appeals the superior court's decision denying him
  permission to appeal from the decree of  foreclosure and a decision
  dismissing his counterclaim.  Plaintiff is Nationwide Mutual Fire 
  Insurance Company, which acquired the mortgage pursuant to a litigation
  settlement with the  original mortgagee, Vermont Federal Bank (VFB).  We
  conclude that the superior court erroneously  denied permission to appeal
  and, accordingly, we reach the merits.  On the merits, we conclude that 
  Nationwide failed to show that it is entitled to a right of subrogation,
  and remand the matter for the  superior court to reconsider, in light of
  our decision, whether Nationwide is entitled to be subrogated 

 

  to the mortgagee's right to foreclose on Gamelin's property.  We also
  conclude that the superior court  erred in granting Nationwide summary
  judgment on Gamelin's counterclaim.  Accordingly, we  reverse and remand.

       The relevant facts are convoluted and concern three lawsuits.  In
  March 1992, Gamelin  purchased from Nationwide a "Golden Blanket"
  homeowner's insurance policy on his residence.  In  November 1993, before
  Gamelin began serving a six-month prison term, he entered into a contract 
  whereby a third party, Carl Albarelli, agreed to assume all financial
  obligations for the home,  including mortgage payments to mortgagee VFB, in
  exchange for exclusive possession and the right  to a deed after the
  mortgage was discharged.  Upon Gamelin's release from prison, he moved into
  an  apartment without returning to his home.  Apparently, while the home
  was in the possession of  Albarelli in November 1994, it was damaged by
  fire.  Gamelin filed an insurance claim with  Nationwide, but Nationwide
  denied it in January 1995 on the grounds that Gamelin did not reside in 
  the home at the time of the fire and had made numerous misrepresentations
  in renewals of the policy  after he entered prison, specifically by failing
  to disclose the mortgage to VFB, his criminal  conviction, and the lease
  purchase arrangement with Albarelli.

       In July 1995, Gamelin assigned his rights as an insured under the
  homeowner's policy to  VFB.  There is also evidence that Gamelin made a
  similar assignment to Albarelli in 1994.  In  November 1995, VFB brought
  suit against Nationwide (the contract case).  In May 1997, in response  to
  opposing motions for summary judgment, the superior court ruled that
  Gamelin's assignment of  rights to VFB was valid, (FN1) and that
  Nationwide's coverage under Gamelin's policy could not be 

 

  denied on the grounds that Gamelin did not reside at the insured premises
  at the time of the fire.  The  court granted summary judgment to VFB on
  these two points, but denied both sides summary  judgment as to
  Nationwide's defense that Gamelin's policy was void because he failed to
  disclose the  existence of the VFB mortgage, the agreement with Albarelli,
  and his incarceration.  The court found  that there were disputed issues of
  material fact with respect to the fraudulent misrepresentation  defense.  
  The court stated that Nationwide would have to prove that Gamelin intended
  to deceive  Nationwide or that the undisclosed information materially
  affected Nationwide's decision to renew  the policy.

       While the contract case was pending, Gamelin discontinued making
  monthly mortgage  payments to VFB, and in August 1996 VFB brought the
  mortgage foreclosure case now before us.   Gamelin filed an answer in that
  case.   

       In late 1997, as trial in the contract case approached, Gamelin sued
  Nationwide for damages  resulting from Nationwide's refusal to pay the
  claims that arose from the fire loss (the tort case).   Within weeks of the
  filing of that case, VFB and Nationwide settled the contract case.  Under
  the  settlement, Nationwide paid VFB $150,000, and VFB's
  successor-in-interest eventually assigned  Gamelin's mortgage deed to
  Nationwide.  The paragraph of the settlement agreement, which is  central
  to the case before us, reads as follows:

    3.	Paragraph 11 of the Defendant's insurance policy provides that
    in  the event the claim by the insured is denied, the [insurer]
    has the  option to  pay the mortgagee all sums due the mortgagee
    and be  thereafter subrogated to the rights of the mortgagee.  The 
    Defendant has elected to exercise its right under this provision
    in  its policy and accordingly, in exchange for the payment of
    said  sum of $150,000.00, 

 

    [VFB] shall assign to [Nationwide] the Promissory Note executed    
    by G. Thomas Gamelin, Jr., together with the Mortgage Deed            
    securing said indebtedness.

  In other sections, the settlement agreement provides that the $150,000
  "represents full payment of  [VFB's] claims, including, but not limited to,
  principal, interest and other charges due the Plaintiff  relative to its
  mortgage received from G. Thomas Gamelin, Jr.," and further provides that
  VFB's  "efforts have resulted in Defendant honoring its insurance policy
  and paying the outstanding  indebtedness owed on the Plaintiff's mortgage."

       The tort case proceeded, and, in June 1998, the superior court ruled
  that Gamelin's earlier  assignment of his rights to Albarelli and VFB
  precluded him from making claims under the policy  for fire loss, (FN2) but
  did not preclude him from going forward with his tort-based claims of bad 
  faith and consumer fraud.  Nationwide was later granted summary judgment on
  the latter claims as  well.

       Meanwhile, Nationwide, proceeding as assignee of Gamelin's mortgage
  deed, sought to  foreclose on Gamelin's residence (the foreclosure case). 
  The superior court issued a decree of  foreclosure after denying Gamelin's
  motion to dismiss and granting Nationwide's motion for  summary judgment on
  Gamelin's counterclaim alleging negligent misrepresentation.  In denying 
  Gamelin's motion to dismiss, the court ruled that a provision in his
  insurance policy allowed for a  right of subrogation, and that Nationwide
  had exercised that right and thus was entitled to proceed  with its
  foreclosure action.  The court then denied Gamelin's motion for permission
  to appeal from  its decree of foreclosure.

 

                                     I.

       The first issue that we must deal with is whether we have jurisdiction
  to consider this appeal.  Section 4601 of Title 12 requires that defendant
  Gamelin obtain permission to appeal, but the  superior court denied such
  permission.  Thus, we can allow this appeal only if we conclude that "the 
  trial court has withheld its discretion entirely or that it was exercised
  for clearly untenable reasons or  to a clearly untenable extent."  Vermont
  Nat'l Bank v. Clark, 156 Vt. 143, 145, 588 A.2d 621, 622  (1991).

       The superior court's decision is short and cryptic: "Dispute is
  actually with decision in earlier  case."  Nationwide argues that the
  court's reference is to the tort case, wherein the court first  dismissed
  Gamelin's contract claims against Nationwide because Gamelin had assigned
  his rights to  VFB and Albarelli, and later found no bad faith or consumer
  fraud.  

       As often occurs in cases like this, we must analyze the merits, at
  least superficially, to review  the decision denying the appeal.  In our
  discussion of the merits below, we conclude that the superior  court acted
  prematurely in granting Nationwide's motion for judgment of foreclosure and
  its motion  for summary judgment on the counterclaim. This conclusion does
  not necessarily mean, however,  that the denial of the motion to appeal was
  beyond the trial court's discretion.  Indeed, if we were to  simply review
  the merits to determine whether to allow the appeal, the screening function
  required  by § 4601 would be superfluous.

       But here, we have other reasons to allow the appeal.  For one thing,
  the decision denying  appeal never mentions Gamelin's attempt to appeal the
  summary judgment for Nationwide on his 

 

  counterclaim.  We must conclude that the court failed to exercise its
  discretion as to that appeal  issue.

       Further, with respect to Nationwide's rights under its settlement with
  VFB, we find the court's  rationale to deny the appeal - "Dispute is
  actually with decision in earlier case." - to be untenable.   Gamelin made
  clear that his appeal issues involve this case.  Gamelin asserts that the
  court erred in  determining that Nationwide could subrogate to the rights
  of VFB.  This issue could not have been  raised in the tort case and is not
  foreclosed by the tort case judgment.

       Finally, we add that there is a pervasive disconnect in the rationales
  put forward by  Nationwide and accepted by the trial court.  On the merits,
  the court ruled that Nationwide is  subrogated to the rights of VFB because
  of the provision of the policy allowing Nationwide to pay  off the
  mortgagee and assume its rights.  On the motion to appeal the subrogation
  decision, the court  apparently ruled that Gamelin could not appeal because
  he assigned his rights to VFB - an entirely  different rationale.  Given
  the superior court's cryptic decision and the apparent switch of rationales 
  to one not explored or explained, we hold that the motion for permission to
  appeal was denied for  untenable reasons.  Accordingly, we reach the merits
  of the appeal.

                                     II.

       On the merits, Gamelin first argues that the court erred in holding
  that Nationwide was  subrogated to the rights of VFB.  The court's decision
  was:

    [A] provision in an insurance policy on mortgaged property for 
    subrogation of the insurer to the rights of the mortgagee is
    generally  held to preclude the right of the mortgagor to have the
    insurance  applied on the mortgage debt. . . . Thus, contrary to
    defendant's  position, his debt was not paid.  The insurance
    policy here provided  for a right of subrogation, which plaintiff
    exercised, and is now  entitled to proceed in the foreclosure
    action initiated by the bank.  

 

    Accordingly, defendant's motion to dismiss the foreclosure action
    is  denied.

  (citations omitted).

       Gamelin contends that Nationwide is not entitled to a right of
  subrogation, notwithstanding  its purported assignment from the bank,
  because the insurance company never covered the fire loss  under his policy
  and never proved any wrongdoing on his part that would have negated
  coverage.   Nationwide responds that its assignment from the bank was valid
  as a matter of law under a  provision in Gamelin's insurance policy, and
  that, in any event, Gamelin cannot challenge the  validity of the
  assignment here because he could have done so in the tort case and never
  did so.

                                     A.

       In making the former argument, Nationwide relies on the following
  section of the parties'  policy:

    If we pay the mortgagee for a loss and deny payment to you:
    a.  we are subrogated to all the rights of the mortgagee granted
    under  the mortgage on the property; or
    b.  at our option, we may pay to the mortgagee the whole principal
    on  the mortgage plus accrued interest.  In this event, we will
    receive a  full assignment and transfer of the mortgage and all
    securities held as  collateral to the mortgage debt.

  Specifically, Nationwide asserts that it proceeded under subsection b.
  above, and that this subsection  gives it a valid assignment from the bank
  as a matter of law.

       Before directly addressing Nationwide's assertions, we note that the
  above clause is part of a  standard mortgage clause that establishes a
  separate contractual relationship between the insurer and  the mortgagee. 
  The primary purpose of the clause is to give the mortgagee additional
  security in the  event the insured mortgagor does something that
  invalidates the insurance policy on the 

 

  mortgaged premises.  See 4 L. Russ & T. Segalla, Couch on Insurance 3d §§
  65:32-33 (1997).   Under this policy language, if the insurer pays off the
  mortgagee, under circumstances where the  mortgagor had no right to recover
  under the policy, the insurer is entitled to be subrogated to the 
  mortgagee's rights as against the insured.  See Auto-Owners Mut. Ins. Co.
  v. Newman,