Opinion ID: 1258773
Heading Depth: 2
Heading Rank: 1

Heading: Master's Refusal to Apply American Security Proceeds

Text: Blanding first contends the master erred in failing to apply the insurance proceeds paid by American Security to reduce her outstanding debt. She argues that the American Security payment of $22,403.91 was paid in settlement of the fire and, under the terms of the mortgage agreement, these sums must therefore be applied to her debt. Specifically, she points to the language of the agreement that any insurance proceeds,... shall be applied to restoration or repair, and if restoration or repair is not economically feasible ..., the insurance proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with the excess, if any, paid to Borrower. Blanding asserts this language requires Lender to apply the proceeds of the American Security policy to her debt, and that she is then entitled to any excess proceeds after application of both the American Security and Foremost policy proceeds. In making this argument, Blanding does not dispute that the sums originally paid by American Security were returned by Lender after discovery of the Foremost coverage. However, she contends the return of those funds did not expunge the payment of those proceeds nor alter the requirement that these proceeds be applied to her mortgage debt. Blanding makes several arguments as to why the returned funds must be included in the payment of insurance proceeds under the mortgage agreement.
Blanding argues the Master's determination of which policy pays first is irrelevant, as both insurers have already paid. She asserts the other insurance clauses, used by the Master to determine which policy was primary, do not apply because this is not a contribution action between insurers, but a dispute between insureds over proceeds that have already been paid. Accordingly she maintains the Master erroneously relied on the other insurance clauses in the two policies in refusing to apply the American Security proceeds. We disagree. [C]ourts faced with the distasteful chore of apportioning liabilities among multiple insurers should look to the language of the policies to ascertain whether the policies are intended to provide primary or secondary coverage. S.C. Ins. Co. v. Fid. & Guar. Ins. Underwriters, Inc., 327 S.C. 207, 214, 489 S.E.2d 200, 203 (1997) (emphasis in original). In other words, the relevant question is not whether a policy is blanket or specific, but what is the `total policy insuring intent' embodied within the policy. Id. One method insurance companies use to indicate whether they intend to provide primary, secondary, or other coverage is to include in their policies `other insurance' clauses that attempt to apportion liability among multiple insurers. Id. at 215, 489 S.E.2d at 204. An `excess' clause, the most common kind of `other insurance' clause, provides a policy will cover only amounts exceeding the policy limits of other insurance covering the same risk to the same property. Id. We find disingenuous Blanding's assertion that the rules concerning determination of policy coverage among more than one policy do not apply because this is an action between insureds, as opposed to insurers. The crux of this litigation is which proceeds are available to be applied to the loss. In the present case, the mortgage agreement provides Blanding is required to maintain property insurance naming Lender as mortgagee and/or an additional loss payee. In the event of loss, the mortgage further provides: the insurance proceeds shall be applied to the sums secured by [the mortgage agreement], whether or not then due, with excess, if any, paid to Borrower. Therefore, under the plain and unambiguous terms of the mortgage agreement, any insurance proceeds must be first applied to sums secured by the mortgage agreement, with any excess paid to Blanding. The American Security policy provided that if there were any other valid or collectible insurance which would attach if the insurance under this policy had not been effected, this insurance shall apply only as excess and in no event as contributing insurance and then only after all other insurance has been exhausted.  (emphasis added). Here, it is undisputed that the Foremost policy was collectible insurance that would attach had the American Security policy not been effected. Additionally, the Foremost policy was sufficient to cover the loss of the insured property and, thus, the American Security policy, as an excess policy, would provide no proceeds.
Blanding maintains, however, even if the Master properly considered the other insurance clauses to apply in a dispute between insureds, his analysis was still flawed because, in order for the other insurance clauses to apply, the policies must cover the same risk and same interest for the benefit of the same insured over the same period of time. She argues the policies cover different interests for the benefit of different insureds, and therefore the other insurance clauses are inapplicable. We disagree. Our courts have held that `[o]ther insurance' clauses are intended to apportion an insured loss between or among insurers where two or more policies offer coverage of the same risk and same interest for the benefit of the same insured for the same period. S.C. Ins. Co. v. Fid. & Guar. Ins. Underwriters, Inc., 327 S.C. 207, 212, 489 S.E.2d 200, 202 (1997). These clauses began their lives as an attempt to prevent fraud in the overinsuring of property. Id. Further, our courts have held that a mortgagor and mortgagee have separate and distinct interests in the same property which they may insure. Johnson v. Fid. & Guar. Ins. Co., 245 S.C. 205, 209, 140 S.E.2d 153, 155 (1965); Murdaugh v. Traders & Mechs. Ins. Co., 218 S.C. 299, 307-308, 62 S.E.2d 723, 726-27 (1950). While we agree with Blanding that she and Lender had separate and distinct interests in the property for insurance purposes, we disagree that, as a result, the two policies in question fail to cover the same interests for the benefit of the same insureds. Although the parties have separate insurable interests, it is possible for both to have contracted to insure the same insurable interest. Thomas v. Penn Mut. Fire Ins. Co., 244 S.C. 581, 585, 137 S.E.2d 856, 858 (1964). The policy issued by Foremost provided for $63,000 worth of coverage on Blanding's dwelling at her Pineville address, naming Blanding as the insured but also denoting Washington Mutual as the lienholder, as required by the mortgage agreement which states Blanding shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire and that [a]ll insurance policies required by Lender and renewals of such policies ... shall name Lender as mortgagee and/or as an additional loss payee. Accordingly, the Foremost policy, while insuring Blanding's interest in the property, likewise insured Lender's interest in the property. The American Security policy provided the named insured mortgagee was Washington Mutual Bank, and named Blanding as the additional insured. It likewise insured the property at Blanding's Pineville address stating, it is agreed that the insurance applies to the property described above and to any person shown as an Additional Insured with respect to such property.... It further noted [l]oss, if any, shall be adjusted with and payable to the above Named Insured Mortgagee, and the Additional Insureds as their interests may appear.... Thus, the American Security policy insured the same property, during the same period, against the same risk for the benefit of the same insureds. Both policies were intended to provide coverage for the mortgaged property that was security for the debt. Thus, the two policies, while insuring the parties' separate and distinct interests, each insured the same interest of the mortgagor and the same interest of the mortgagee. In other words, while Blanding and Lender may have separate and distinct interests insured by the policies, both policies insured both parties' interests. Accordingly, we find the two policies contracted to insure the same insurable interest, and there is no merit to Blanding's assertion that the other insurance clause in the American Security policy is inapplicable on this basis.
Finally Blanding claims, even if the policies did cover the same risks, interests, and insureds during the same period of time, the other insurance clause in the American Security policy conflicts with statutory law and is therefore invalid. Specifically, Blanding points to sections 38-75-20 and XX-XX-XXX of the South Carolina Code of Laws in support of this argument. Section 38-75-20 provides in pertinent part: No insurer doing business in this State may issue a fire insurance policy for more than the value stated in the policy or the value of the property to be insured.... If two or more policies are written upon the same property, they are considered to be contributive insurance, and, if the aggregate sum of all such insurance exceeds the insurable value of the property, as agreed by the insurer and the insured, each insurer, in the event of a total or partial loss, is liable for its pro rata share of insurance. S.C.Code Ann. § 38-75-20 (2002). Section 38-75-220 provides in part: No insurer transacting a mobile home insurance business in this State and writing hazard insurance covering loss from physical damage to the mobile homes may issue a policy for more than the value stated in the policy or the value of the property to be insured.... If two or more such policies are written upon the same property and covering the same interests, they are considered to be contributive insurance, and, if the aggregate sum of all such insurance exceeds the insurable value of the property, as agreed by the insured and insurer, each insurer, in the event of a total or partial loss, is liable for its pro rata share of insurance. S.C.Code Ann. § 38-75-220 (2002). Blanding argues, to the extent the two policies in question cover the same interests, the other insurance clause in the American Security policy is invalid because it conflicts with sections 38-75-20 and 38-75-220 of the South Carolina Code. She argues under these sections such policies are deemed to be concurrent and contributive as a matter of law, and as such, each insurer is primarily liable for its pro rata share of the loss to the extent the aggregate sum of insurance exceeds the insurable value of the property. Again, we disagree. [I]f policies insure the same entity and interest against the same casualty, then the coverage provided by the policies is concurrent, thus requiring pro rata contribution absent a contrary provision in an `other insurance' clause contained in one of the policies. S.C. Ins. Co. v. Fid. & Guar. Ins. Underwriters, Inc., 327 S.C. 207, 214, 489 S.E.2d 200, 203 (1997) (emphasis added). Here, the American Security policy contains an other insurance clause that provides [i]f there is any other valid or collectible insurance which would attach if the insurance under this policy had not been effected, this insurance shall apply only as excess and in no event as contributing insurance and then only after all other insurance has been exhausted. Thus, the policy language clearly provides to the contrary and the coverage provided by the policy is not concurrent and contributive as a matter of law.