Opinion ID: 1142462
Heading Depth: 2
Heading Rank: 2

Heading: whether first columbus destroyed national farmers's subrogated security interest, materially breaching the contract.

Text: National Farmers' second theory to bar recovery by First Columbus asserts that First Columbus impaired the subrogation rights of National Farmers in violation of the policy itself and Mississippi statutory law. In formulating its argument, National Farmers correctly states that First Columbus is a party to the contract of insurance through the standard mortgage clause. This Court in Weems v. American Sec. Ins. Co., held that this clause is a separate contract of insurance entered into between the mortgagee and the insuror. Weems v. American Sec. Ins. Co., 450 So.2d 431, 436 (Miss. 1984). National Farmers also recognized that this contract provided that any payments made by National Farmers under the policy to First Columbus would entitle National Farmers to have the rights of First Columbus transferred to it. McGory v. Allstate Ins. Co., 527 So.2d 632 (Miss. 1988) (where insurer is not liable to insured mortgagor but, nevertheless, pays mortgagee, insurer is subrogated to all the rights of the mortgagee). Although National Farmers recites the correct law it fails to properly apply such law. The language of the policy itself and the statute demonstrate the order in which events must occur before the insurer will be subrogated to the mortgagee's interest. The pertinent part of the policy reads as follows: If we pay the mortgage holder for any loss or damage and deny payment to you because of your acts or because you have failed to comply with the terms of this Coverage Part: (1) The mortgage holder's rights under the mortgage will be transferred to us to the extent of the amount we pay. (emphasis added). The statute in pertinent part reads as follows: Whenever this company shall pay the mortgagee (or trustee) any sum for loss or damage under this policy and shall claim that, as to the mortgagor or owner, no liability therefor existed, this company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made, under all security held as collateral to the mortgage debt, or may, at its option, pay to the mortgagee (or trustee) the whole principal due or to grow due on the mortgage with interest, and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities; but no subrogation shall impair the right of the mortgagee (or trustee) to recover the full amount of ____ claim. Miss. Code Ann. § 83-13-9 (1972) (emphasis added). The language found in the policy and in the statute make it apparent that the insurance company must first pay the mortgagee before it can subrogate the rights of the mortgagee. In fact, the amount of such payment dictates the extent of the subrogation. Payment is a necessary condition precedent to subrogation rights. This rule of law was recognized by this Court in Great American Ins. Co. v. Smith, 252 Miss. 62, 172 So.2d 558 (1965). In Smith, the appellant asserted that the lower court erred in not directing subrogation of the mortgagee's rights under the deed of trust pursuant to Miss. Code Ann. § 5695 (1956) (now Miss. Code Ann. § 83-13-9). Smith, 172 So.2d at 559. However, the appellant had not paid the mortgagee under the policy and this Court held that subrogation follows as a matter of law when, but not before, appellant makes payment to the mortgagee. Id. (emphasis added). The holding in Smith is consistent with the language of the policy itself and the controlling statute. Thus, until National Farmers pays First Columbus under the policy, it cannot allege violations of rights which are not yet vested. [1]