Court Opinion

ID: 9726731
Source: CourtListenerOpinion
Date Created: 2023-08-26 13:05:36.668932+00
Date Added: 2024-06-11T18:25:30.104558
License: Public Domain

R. M. Maher, J.
(dissenting). This Court granted leave to appeal from the Wayne County Circuit Court’s affirmance of the directed verdict for defendant granted in Common Pleas Court. The circuit court decided but one issue, "whether the trial court erred in its conclusion that the acquisition of absolute title [by the mortgagee] * * * upon the expiration of the period of redemption following foreclosure of its mortgage, constituted a 'change of ownership’ within the meaning of the standard mortgage clause of the fire insurance policy issued by the defendant”. The majority, writing to affirm the circuit court, goes beyond deciding this single issue of policy construction.
The analysis of underwriting risks is interesting but it has no place in deciding this appeal. Nor *260can the invocation of "the elementary rules of contract law” disguise a departure from those rules to achieve what the majority believes to be "the interest of wise social policy”. Limiting my analysis to the single issue presented by this appeal, the meaning of "change of ownership” in the standard mortgage clause, I am forced to dissent from both the majority’s approach and result.
The majority correctly recognizes that a standard mortgage clause, as distinguished from an open loss payable clause, creates a separate contract between the mortgagee and the insurer, Booker T Theatre Co v Great American Insurance Co of New York, 369 Mich 583; 120 NW2d 776 (1963); 5A Appleman, Insurance Law and Practice, § 3401; 11 Couch on Insurance (2d ed), § 42:694. It is then asserted, without support, that consideration for this contract is the promise to give notice to the insurer of changes in the property which would increase the insurer’s risk.
"The consideration for the insurer’s undertaking with respect to the mortgagee under the standard clause is the consideration for which the policy was itself issued to the mortgagor, and a standard mortgage clause creates a separate contract between the insurer and the mortgagee, and is enforceable by the mortgagee, even though it is merely engrafted onto the policy delivered to the mortgagor.” 11 Couch on Insurance (2d ed), § 42:694, pp 348, 350.
Simply reading the standard mortgage clause is the best way to understand the obligations undertaken by the mortgagee and the insurer when an insurance policy containing a standard mortgage clause is issued. The clause provides:
"Loss or damage, if any, under this policy, shall be payable to the mortgagee (or trustee), named on the *261first page of this policy, as interest may appear, and this insurance, as to the interest of the mortgagee (or trustee) only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property, nor by any foreclosure or other proceedings or notice of sale relating to the property, nor by any change in the title or ownership of the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy; provided, that in the case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee (or trustee) shall, on demand, pay the same.
"Provided also, that the mortgagee (or trustee) shall notify this Company of any change of ownership or occupancy or increase of hazard which shall come to the knowledge of said mortgagee (or trustee) and, unless permitted by this policy, it shall be noted thereon and the mortgagee (or trustee) shall, on demand, pay the premium for each such increased hazard for the term of the use thereof; otherwise this policy shall be null and void.”
The insurer has agreed to provide coverage for the mortgagee’s interest in the insured property even if there has been a "foreclosure or other proceedings or notice of sale relating to the property” or a "change in the title or ownership of the property”. One of the mortgagee’s obligations is to notify the insurer of "any change of ownership”.
The foreclosure referred to in the agreement can only mean foreclosure by the mortgagee, because if anyone else should purchase the property at foreclosure the mortgagee’s insurable interest is extinguished. Construing the reference to foreclosure in the standard mortgage clause, the Appellate Court of Illinois said: "[I]t is apparent that the provisions of the mortgage clause in question were clearly intended to cover the mortgagee’s interest as it succeeded to ownership through foreclosure”. *262Guardian Savings & Loan Ass’n v Reserve Insurance Co, 2 Ill App 3d 77, 79; 276 NE2d 109, 111 (1971). See also, 11 Couch on Insurance (2d ed), § 42:712.
There is no reason to read "foreclosure or other proceedings” and "change in * * * ownership” in the first paragraph of the standard mortgage clause quoted above as referring to the same occurrences. "Change in * * * ownership”, it seems obvious, refers to acquisition of an interest in the property by someone other than the mortgagee. Unless the meaning of the words chosen by the insurance company varies from paragraph to paragraph in the insurance policy, it does not make sense to read "change of ownership” in the second paragraph of the standard mortgage clause as referring to an increase in the mortgagee’s interest through foreclosure. As this Court stated in Federal National Mortgage Association v Ohio Casualty Insurance Co, 46 Mich App 587, 591; 208 NW2d 573 (1973), quoting from 43 Am Jur 2d, Insurance, § 890, p 852:
"Under a policy containing a union or standard mortgage clause, the mortgagee’s interest is regarded as separately and independently insured, and his acquisition of title to the insured property is generally regarded as an increase of interest, rather than a change of ownership. "(Emphasis supplied.)
FNMA introduced no novel proposition by holding that increase of that interest could not be used by an insurer to deny coverage to a mortgagee under the provision requiring notice when there is a "change of ownership”. In Shores v Rabon, 251 NC 790, 796; 112 SE2d 556, 561 (1960), the Supreme Court of North Carolina found ample support for a similar holding:
*263"With respect to the matter of notice of 'change of ownership’ in a similar factual situation, it was said: ' "the proviso that the mortgagee should notify the defendant of any change of ownership which should come to its knowledge evidently has reference only to changes resulting from the acts of the mortgagor or owner of the equity of redemption.” The proviso has reference to a change or transfer of title or possession to a third person, not to one from the mortgagor to the mortgagee through a foreclosure.’ Pioneer Savings & Loan Co v St Paul Fire & Marine Insurance Co, 68 Minn 170; 70 NW 979, 980 (1897). See also Washburn Mill Co v Fire Ass’n, 60 Minn 68; 61 NW 828 (1895), Guarantee Trust & Safe Deposit Co of Shamokin v Home Mutual Fire Insurance Co, 180 Pa Super 1; 117 A2d 824 (1955), Fort Scott Building & Loan Ass’n v Palatine Insurance Co, 74 Kan 272; 86 P 142 (1906), Glen Cove Trust Co v Trypuc, 110 NYS2d 368 (Sup Ct, 1952), Westchester Fire Insurance Co of New York v Norfolk Building & Loan Ass’n, 14 F2d 524 (CA 8, 1926), Royal Insurance Co v Drury, 150 Md 211; 132 A 635; 45 ALR 582 (1926).” (Emphasis supplied.)
If "change of ownership” in the policy provision requiring notice refers to the acquisition of an interest in the property by a stranger to the original insurance contract, how can that provision be applied here? How is the passage of the period of redemption significant?
If the insurance company desired notice that the period of redemption after foreclosure had passed, it could have explicitly provided for such notice by the mortgagee. See Federal Land Bank of Columbia v Agricultural Insurance Co of Watertown, NY, 172 SC 109; 173 SE 295 (1934); cf. Oregon Mortgage Co, Ltd v Hartford Fire Insurance Co, 122 Wash 183, 189; 210 P 385, 387 (1922):
"If the insurance company had desired proofs of loss from the mortgagee, or notice of foreclosure and pur*264chase by the mortgagee, at the execution sale, it could have incorporated such provision in the clause which constituted its contract with the mortgagee. The change of ownership mentioned in the clause evidently refers to a sale to some other person with whom the insurance compaiiy was not under contract. ”(Emphasis supplied.)
Again I emphasize that the circuit court decided but one issue — the meaning of "change of ownership” in the standard mortgage clause. This Court should limit itself to a review of that decision, and not speculate on other matters.
I must dissent.