Waterstone Bank, SSB v. American Family Mutual Insurance
832 N.W.2d 152
Wis. Ct. App.2013Background
- Bank holds a mortgage on two Milwaukee properties purchased with a $420,000 loan in 2006.
- American Family issued a 2008 businessowners policy covering the properties with a total limit of $412,000.
- In 2008 damages occurred from vandalism, water damage, and theft; a claim was filed in 2009.
- Policy reserves denied coverage under the vacancy provision, which excludes certain perils if the building has been vacant more than 60 days.
- Bank sought recovery under the standard mortgageholder clause; circuit court granted summary judgment for American Family; Bank appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does a standard mortgageholder clause grant coverage when vacancy excludes coverages? | Bank argues vacancy denial could be bridged by mortgageholder clause. | American Family argues vacancy perils were never assumed and are not covered. | No; mortgageholder clause does not create coverage for nonassumed risks. |
| Are vacancy-related perils (vandalism, water damage, theft) risks never assumed by the policy? | Bank contends these perils are within policy coverage via mortgageholder clause. | American Family maintains these perils are excluded during vacancy and not assumed. | Yes; these perils are excluded under vacancy and not covered despite mortgageholder status. |
| Can the mortgageholder recover if the insured’s act breaches or voids the policy? | Bank relies on standard clause to bypass insured's vacancy as a breach. | Policy terms apply to mortgagee only if they are breached by the mortgagor, not to nonassumed risks. | No; standard clause does not operate to provide coverage for risks never assumed. |
Key Cases Cited
- Bank of Cashton v. La Crosse Cnty. Scandinavian Town Mut. Ins. Co., 216 Wis. 513 (1934) (standard mortgage clause protects mortgagee when mortgagor's acts breach policy terms)
- Polar Mfg. Co. v. Integrity Mut. Ins. Co., 7 Wis. 2d 443 (1959) (standard clause; mortgagee bound to same terms as insured)
- Avemco Ins. Co. v. Jefferson Bank & Trust Co., 613 S.W.2d 436 (Mo. Ct. App. 1980) (coverage not created for risk never assumed; seizure example)
- General Motors Acceptance Corp. v. Western Fire Insurance Co., 457 S.W.2d 234 (Mo. Ct. App. 1970) (coverage not extended to risks expressly excluded by policy)
- Hill Fed. Sav. & Loan Ass'n v. South Carolina Farm Bureau Ins. Co., 316 S.E.2d 684 (1984) (policy viable as to mortgagee despite insured's nonpayment)