Nationwide Mutual Fire Insurance Co. v. Citizens Bank & Trust Co.
2014 Ark. 20
Ark.2014Background
- Nationwide issued a homeowners fire policy (May 6, 2009–May 6, 2010) naming Citizens Bank & Trust Company as “First Mortgagee” with a standard mortgage clause.
- The Ludwicks’ dwelling burned on December 16, 2009; Citizens had a valid mortgage and timely submitted a claim to Nationwide.
- During investigation, Nationwide discovered the Ludwicks failed to disclose multiple prior fire losses; underwriting said it would not have issued the policy if full loss history had been disclosed.
- Nationwide rescinded the policy ab initio for material misrepresentations and refunded the Ludwicks’ premiums; Nationwide denied Citizens’ claim on the ground the policy was void from inception.
- The parties stipulated to the material facts and cross-moved for summary judgment; the circuit court granted summary judgment for Citizens.
Issues
| Issue | Plaintiff's Argument (Nationwide) | Defendant's Argument (Citizens) | Held |
|---|---|---|---|
| Whether rescission for insured’s fraud voids mortgagee’s rights where policy contained a standard mortgage clause | Rescission voids the policy ab initio, so no policy (and thus no mortgagee interest) ever existed | Standard mortgage clause creates a separate, independent contract with the mortgagee that survives insured’s misconduct | The mortgagee’s separate contract survives rescission; summary judgment for Citizens affirmed |
| Whether mortgagee’s recovery is subject to insured’s policy defenses (e.g., concealment/fraud) | Mortgagee is bound by policy terms and defenses; rescission and fraud provisions bar recovery | Mortgagee’s rights arise from independent contract, not as insured, so insured’s acts don’t defeat mortgagee’s claim | Mortgagee’s rights not defeated by insured’s acts; insured-based defenses do not extinguish mortgagee’s independent contractual right |
| Whether denial of insured’s claim (vs. other policy actions) affects mortgagee’s independent right | Nationwide contends it didn’t “deny” the Ludwicks’ claim under policy terms, so certain mortgage clause triggers do not apply | Citizens argues denial of insured’s claim is irrelevant because mortgagee’s contract is independent | Court holds mortgagee’s independent contract controls; form/labeling of denial/cancellation is immaterial |
| Whether summary judgment was proper on stipulated facts | Nationwide contends law favors rescission nullifying all interests | Citizens contends settled Arkansas law establishes mortgagee’s independent protection; thus judgment as a matter of law | Court reviews de novo and finds no genuine issue of material fact; affirms summary judgment for Citizens |
Key Cases Cited
- Ferrell v. Columbia Mut. Cas. Ins. Co., 306 Ark. 533 (recognizing common-law right to rescind for material misrepresentation)
- Farmers Home Mut. Fire Ins. Co. v. Bank of Pocahontas, 355 Ark. 19 (standard mortgage clause creates separate contract protecting mortgagee)
- Dalrymple v. Royal-Globe Ins. Co., 280 Ark. 514 (mortgagee treated as if independently applied for insurance)
- Okla. State Union of Farmers’ Educ. & Coop. Union of Am. v. Folsom, 325 P.2d 1053 (Oklahoma: mortgagee’s contract valid even if policy void ab initio)