Court Opinion

ID: 9519367
Source: CourtListenerOpinion
Date Created: 2023-08-07 01:15:03.496413+00
Date Added: 2024-06-11T12:44:18.993589
License: Public Domain

Brickley, J.
(concurring). I agree with the majority’s conclusion that because a lienholder has a separate contract of insurance with an insurer, pursuant to a standard loss payable clause, it is entitled to recovery under the policy even when the owner of the insured property was excluded from recovery. I write separately to address more directly the language of the insurance contract and to further explain my reasoning.
i
Relying on Boyd v General Motors Acceptance Corp, 162 Mich App 446; 413 NW2d 683 (1987), Allstate argues that the standard loss payable clause included in its policy issued to Bobby Taylor does not allow Foremost to recover where there has been no covered "loss” from the perspective of Bobby Taylor. The loss payable clause provides, in pertinent part:
*394Loss or damage, if any, under the policy shall be payable as interest may appear to [State Employees Credit Union] and this insurance as to the interest of the [lienholder] shall not be invalidated by any act or neglect of the Lessee, Mortgagor^ Owner of the within described automobile or other Debtor nor by any change in the title or ownership of the property ....
Allstate argues, and the Boyd Court held, that because "loss” is defined in the policy as "direct and accidental loss of or damage to” the automobile, Bobby Taylor’s intentional destruction by fire of his vehicle did not result in a "loss” according to the meaning of that term as used in the policy. Thus, according to the Boyd analysis, because the loss payable clause only allows recovery where there is "[l]oss or damage, if any, under the policy,” the lienholder has no right of recovery where the owner of the insured vehicle intentionally destroys it. Boyd, supra at 453.
The majority rejects Allstate’s argument as being contrary to the purpose of a standard loss payable clause because it would allow an insurer to "avoid its basic promise to hold the lienholder harmless from any act or. neglect by the insured . . . .” Ante at 386. I reject Allstate’s argument as being contrary to the language of the standard loss payable clause in its policy.
A
I agree with Allstate that Foremost cannot recover unless there has been a loss under the policy. Therefore, to the extent that the majority relies on the "any act or neglect” language of the loss payable clause, I disagree. As the Boyd Court noted, supra at 455, there is a difference between acts that invalidate coverage and acts that result in an exclusion from coverage:
*395"A condition subsequent is to be distinguished from an exclusion from the coverage: the breach of the former is to terminate or suspend the insurance, while the effect of the latter is to declare that there never was insurance with respect to the excluded risk. Accordingly, the suicide clause in a life insurance policy is not a condition subsequent but rather suicide is simply not a risk insured against.” [Id. at 455, quoting 7 Couch, Insurance, 2d (rev ed), § 36:49, p 483.]
The loss payable clause in Allstate’s policy provides that the lienholder’s coverage "shall not be invalidated by any act or neglect” of Bobby Taylor. However, an intentional act that results in the destruction of the insured property is not an act that invalidates the coverage; rather, such an act of destruction is not included in the coverage of the policy. Thus, the "any act or neglect” language in the loss payable clause protects the lienholder only from Bobby Taylor’s acts or neglect that would invalidate the policy. Therefore, the loss payable clause provides for recovery only where there has been loss or damage under the policy, and the "any act or neglect” language cannot create a covered loss where there is none.
B
Although I agree with Allstate and the Boyd panel with respect to the construction of the "any act or neglect” language, I conclude that Foremost can recover under the loss payable clause because the loss was "accidental” from the perspective of the lienholder. Implicit in the Boyd Court’s holding is the conclusion that the policy definition of "loss” as "accidental” means that a loss must be accidental from the perspective of the insured. I agree. Clearly, the definition of loss as "accidental” *396would negate coverage under the policy for all loss or damage that results from intentional acts by parties other than the insured if a loss must be accidental from everyone’s standpoint. If that were the case, the owner of the car could not recover when a third party intentionally destroyed his car and, further, theft coverage under the policy would be meaningless. Thus, under Allstate’s policy, whether a loss is "accidental” must be determined from the perspective of the insured.
While the Boyd Court stated it had no quarrel with other decisions holding that the standard loss payable clause constitutes a separate contract of insurance, id. at 453, the Court failed to grasp the significance of this fact. The majority correctly finds that the standard loss payable clause differs from an ordinary loss payable clause where the lienholder is merely an appointee and has no right of recovery greater than the right of the owner of the insured property. Ante at 383-384. In contrast, under a standard loss payable clause the lienholder’s right of recovery is not derivative because, as the majority notes, "there are two contracts of insurance within the policy — one with the lien-holder and the insurer and the other with the insured and the insurer.” Id. at 384.1 Like the Boyd panel, in concluding that Foremost can re*397cover, the majority misses the significance of the two separate contracts of insurance.
Because the standard loss payable clause creates a separate contract of insurance between the lien-holder and the insurer, the lienholder is also clearly an insured under the policy. The Boyd Court was correct in its conclusion that a covered loss must be accidental from the perspective of the insured. However, in determining the meaning of "accidental” loss only through the eyes of the owner of the automobile, Boyd ignored the fact that the insured making a claim under the policy in that case was the lienholder and not the owner of the intentionally destroyed vehicle. Had the lienholder in Boyd applied for insurance independently of the car owner’s insurance, the lienholder’s recovery surely would not turn on whether a loss was accidental from the perspective of a party insured under a separate policy. Likewise, where a standard loss payable clause creates a separate contract for insurance between the lienholder and the insurer, equivalent to a policy obtained independently of the car owner’s policy, it is the lien-holder’s perspective that governs in terms of whether there has been accidental loss or damage under the policy. Thus, the correct interpretation of "accidental” loss in Allstate’s policy must be from the perspective of the insured who is making a claim, which in this case is Foremost, as subrogee of the lienholder, and not Bobby Taylor.2
II
Allstate’s second argument, in support of its assertion that Foremost is barred from recovery, is *398that arson is included in the meaning of the conversion proviso in the standard loss payable clause, which provides:
[T]he conversion, embezzlement or secretion by the Lessee, Mortgagor, Purchaser or other Debtor in possession of the property insured under a bailment lease, conditional sale, mortgage or other security agreement is not covered under such policy, unless specifically insured against and premium paid therefor ....
Allstate argues that Bobby Taylor "converted” the lienholder’s interest in his vehicle by intentionally destroying it. The majority rejects Allstate’s argument, concluding that the conversion proviso focuses on the property insured and not the lien-holder’s interest in that property. Ante at 390. Thus, according to the majority, because a person cannot convert his own property, by intentionally destroying it or otherwise, the conversion proviso does not prevent Foremost from recovering on the basis that Bobby Taylor intentionally destroyed his vehicle. Id. at 390-391.
The majority’s interpretation of the conversion proviso renders it meaningless. The proviso specifically excludes coverage where there has been "conversion, embezzlement or secretion by the Lessee, Mortgagor, Purchaser or other Debtor in possession of the property insured . . . .” (Emphasis added.) Therefore if, as the majority concludes, the proviso refers only to the conversion of the insured property, and a person cannot convert his own property, the proviso is clearly without any effect.
I conclude that the better interpretation of the conversion proviso follows from the purpose of the loss payable clause to protect the lienholder’s intangible interest in the insured property.
*399That a lien holder of such character has an insurable interest is not open to question. . . . "Wherever property, either by force of law or by the contract of the parties, is so charged, pledged, or hypothecated that it stands as a security for the payment of a debt or the performance of a legal duty, each of the parties — the owner of the lien, and the person against whose property it exists— has an insurable interest in the property. The interest of a lien holder is an insurable one despite the fact that he may sue his debtor personally or that the interest is subject to contingencies.” [Booker T Theatre Co v Great American Ins Co of New York, 369 Mich 583, 587; 120 NW2d 776 (1963), quoting 29 Am Jur, Insurance, § 453, p 790.]
Thus, because the standard loss payable clause protects the lienholder’s interest in the property insured — the lien — the proviso must refer to the conversion, embezzlement, or secretion of the lien-holder’s interest. This interpretation is consistent with the language of the proviso as well. While the proviso clearly refers to conversion by the owner of the insured property, the wording is less clear with regard to what must be converted, embezzled, or secreted in order to prevent coverage under the policy without the payment of an additional premium. However, because the majority’s interpretation would render the exclusion a nullity, the wording must be read to refer to the lienholder’s interest.3
Thus, the issue that must be addressed is *400whether, as Allstate argues, arson is included in the meaning of "conversion, embezzlement or secretion.” A b.road interpretation of "conversion” might support Allstate’s argument that Bobby Taylor converted the lienholder’s interest in his vehicle by intentionally destroying the vehicle. However, it is a familiar and well-established principle of law that courts give to an insurance policy, couched in language chosen by the insurer, a construction most favorable to the insured. Pietrantonio v Travelers Ins Co, 282 Mich 111, 116; 275 NW 786 (1937). Further, exceptions from coverage are strictly construed against the insurer. Id.
A strict reading of the words "conversion, embezzlement or secretion” does not support Allstate’s argument. While, as Allstate notes, Bobby Taylor’s action in destroying the car was inconsistent with the lienholder’s interest in the property, Allstate’s use of theft-related terms in its standard mortgage clause cannot be strictly construed to include the act of arson. As another court has found, the terms conversion, embezzlement, and secretion "suggest crimes falling within the general category of theft or larceny . . . .” Nat'l Casualty Co v General Motors Acceptance Corp, 161 So 2d 848, 852 (Fla App, 1964). Thus, as that court held,
An insurer will not be allowed by the use of *401obscure phrases or exceptions to defeat the purpose for which the policy was procured, and where two interpretations are available the one allowing the greater indemnity will prevail.
Therefore, although the conversion exclusion in the standard loss payable clause could be broadly interpreted in a general tort sense to apply to arson committed by the owner of the insured property, when read strictly the proviso is no more than a limit on the theft coverage of the policy.
Thus, as one commentator has argued, the conversion proviso in the standard loss payable clause is intended to prevent a lienholder from recovering where the owner of a vehicle fails to make payment and removes the vehicle from the reach of the lienholder.4 In such a case, the inability of the lienholder to enforce its security interest results from a credit problem rather than a risk of loss of or damage to the property for which the lienholder obtained insurance.5 Therefore, in a case where the purchaser of an automobile under a conditional sales contract tendered a bad check to the seller and thereafter absconded with the car, the California Supreme Court held that the conversion exclusion in the insurance policy6 prevented recovery by the lienholder. Fiske v Niagara Fire Ins Co of New York, 207 Cal 355; 278 P 861 (1929). The Fiske court reasoned that the parties, through the conversion exclusion, intended to exclude as a risk insured against the dishonest act of *402an automobile purchaser against the seller of that automobile who voluntarily put the vehicle in the hands of the purchaser under a conditional sales contract. Id. at 357. Thus, under this interpretation of the conversion exclusion, the lienholder retains the risk that a mortgagor might be a bad credit risk, despite the fact that through the standard loss payable clause the lienholder does not assume the risk that the mortgagor might intentionally destroy the insured property.
Therefore, under the required strict construction of the conversion exclusion in Allstate’s standard loss payable clause, the terms 'Conversion, embezzlement or secretion” do not include within their meaning the intentional destruction of the insured property by arson. I agree with the majority that if Allstate wishes to exclude from the lienholder’s coverage loss or damage that results from such an intentional act by the owner of the insured property, it may do so by expressly stating that "arson” committed by any insured is not a covered risk under the policy, or in broader terms by providing that the lienholder’s right to recovery is no greater than that of the property owner.
CONCLUSION
The standard loss payable clause in the policy protects a lienholder from loss of coverage, where the owner of the insured property intentionally destroys it, because such a loss is "accidental” from the lienholder insured’s perspective and therefore is covered under the policy. Thus, a lienholder can recover when the loss is accidental from its perspective, but cannot recover, for example, when the lienholder colludes with the car owner to intentionally destroy the car. Further, *403when the loss is accidental from the perspective of both the lienholder and the property owner, the lienholder’s right to recovery will not be defeated by an act or neglect of the property owner that would otherwise invalidate the policy. Finally, a lienholder will not be entitled to recovery on the claim of a theft loss under the policy, when the property owner converts, embezzles, or secretes the lienholder’s interest in the insured property.
I believe the foregoing analysis best fulfills the mandate that an insurance contract, like any other contract, must be construed as a whole so that all its parts are harmonized, and if possible every word must be given effect. Associated Truck Lines, Inc v Baer, 346 Mich 106, 110; 77 NW2d 384 (1956).
I concur in the result reached by the majority.
Cavanagh, C.J., concurred with Brickley, J.

 See also 5A Appleman, Insurance Law & Practice, § 3401, pp 286-288:
Some cases have held that a mortgage loss payable clause is, in effect, an independent agreement with the mortgagee, creating an independent contract between the company and the mortgagee for the latter’s benefit. It is definitely true that this result obtains under a union or standard mortgage clause, it being considered that there the insurer has entered into a separate contract with the mortgagee just as if the latter had applied for the insurance entirely independently of the mortgagor.

 This interpretation of the standard loss payable clause also does not render the "any act or neglect” language of the clause superfluous, because it allows the lienholder to recover in a situation where there has been a loss under the policy from the perspectives of both the property owner and the lienholder, but the property owner’s acts or neglect would otherwise invalidate the policy.

 There is also no doubt that an intangible interest, such as the lien insured against risk of loss under the standard loss payable clause, is subject to conversion.
The conception that an action for conversion lies only for tangible property capable of being identified and taken into actual possession is based on a fiction on which the action of trover was founded, namely, that the defendant had found the *400property of another, which was lost. This conception has become, in the progress of law, an unmeaning thing, which has been discarded by most courts. Thus, it has been declared that an action for conversion lies for every species of personal property which is the subject of private ownership, whether animate or inanimate. [18 Am Jur, 2d, Conversion, § 7, p 150.]
See also Warren Tool Co v Stephenson, 11 Mich App 274; 161 NW2d 133 (1968); Tuuk v Andersen, 21 Mich App 1; 175 NW2d 322 (1969); Miracle Boot Puller Co, Ltd v Plastray, 57 Mich App 443; 225 NW2d 800 (1975).

 See Lehto, The standard mortgage clause under attack: The lender’s insurance claim when a borrower commits arson, 66 U Det L R 603, 614 (1989).

 Id. at 618.

 The policy provided for recovery for " 'theft, robbery or pilferage . . . excepting the wrongful conversion, embezzlement, or secretion by a mortgagor or vendee in possession under mortgage, conditional sale or lease agreement ....’” Fiske v Niagara Fire Ins Co of New York, 207 Cal 355, 356; 278 P 861 (1929).