Opinion ID: 497278
Heading Depth: 2
Heading Rank: 2

Heading: The Status of Col-Mur's Policy with National

Text: 13 As mentioned above, Iaia argues that Col-Mur's policy with National was intended to cover Iaia's and S.P.G.'s interests as well as Col-Mur's, that is, it was a dual interest policy. The bankruptcy court found--and the district court agreed--that Col-Mur had procured a single interest policy because it was the only insured named in its policy. We believe such a conclusion is a plain error of law. 14 We hold that all insurance policies taken out by a mortgagee pursuant to Sec. 254(4) upon the mortgagor's default are automatically dual interest policies. A close reading of the text of Sec. 254(4) points persuasively toward this finding. First, Sec. 254(4) provides that if the mortgagor defaults in insuring the premises, the mortgagee may make such insurance from year to year. If the mortgagor had insured the premises himself, he undoubtedly would have benefited from the policy. It follows that the mortgagee's acquisition of such insurance is--absent compelling evidence to the contrary--similarily intended to benefit the mortgagor. 15 Second, Sec. 254(4)'s imposition of an obligation on the mortgagor to reimburse the mortgagee for any premiums paid thereunder is even stronger evidence that the section creates dual interest policies as a matter of law. Finding that Sec. 254(4) requires reimbursement for not only a mortgagee's payments for a dual interest policy but also for a single interest policy--as National contends here--would be highly inequitable. The result would be that the mortgagor would be statutorily required to pay premiums for insurance that might not cover him and for which he might receive no benefit. We cannot attribute to the New York legislature an intent to bring about such an inequitable result. 16 As a final note, as far as the record shows, the insurance company charged the same premiums regardless of whether the mortgagor or the mortgagee took out the policy. If the policy had been intended to be a single interest policy and if, as National argues, it was subrogated to Col-Mur's lien position to the extent of payments made, National would have assumed less risk than under a dual interest policy. Presumably, then, National would have charged lower premiums for a single interest policy. The apparent equality in premium costs here also points toward the conclusion that the policy was intended to benefit the mortgagor as well as the mortgagee, that is, it was a dual interest policy. 17 National is not entitled to subrogation under a dual interest policy, except under certain circumstances. In Reed v. Federal Insurance Co., 123 A.D.2d 188, 196, 510 N.Y.S.2d 618, 623 (2d Dep't 1987), the court held that in paying insurance proceeds to the mortgagee, the insurer had done no more than the policy required, and therefore could not invoke its subrogation rights. Only an adjudication that the mortgagor had been complicit in the act of arson that had destroyed the property (or had otherwise forfeited her rights under the policy) would have triggered the subrogation clause. Without such a determination, the insurance proceeds paid to the mortgagee were held to reduce the mortgage debt without giving the insurer any cause of action against the mortgagor. Looking at the same situation in reverse, the court in Larchmont Federal Savings & Loan Association v. Ebner, 89 A.D.2d 1009, 1009, 454 N.Y.S.2d 450 (2d Dep't 1982), held that where the mortgagors had violated the conditions of the policy, thereby precluding their recovery from the insurer, the insurer's payment to the mortgagee could not be applied to extinguish the mortgage debt. Thus, only a showing of the mortgagor's culpable conduct would prevent the insurance proceeds from being applied to the mortgage debt and would trigger the insurer's subrogation rights under the standard New York policy's mortgage and subrogation provisions. National fails to allege such conduct here. 18 Given these considerations, we hold that the trial court erred in finding that the policy here was a single interest policy. Since Col-Mur's policy was in fact a dual interest policy, National therefore was not entitled to be subrogated to Col-Mur's lien position over the interests of Iaia and S.P.G. Accordingly, we need not address the possible extent of National's subrogation rights or whether a subrogation clause is triggered only in cases when there is proof of fraud or of an underlying tort claim.