430 Mass. 298 | Mass. | 1999
We granted an application of Hingham Mutual Fire Insurance Company (Hingham Mutual) for further appellate review in this case. The Appeals Court affirmed a judgment of the Superior Court and held that Hingham Mutual, the homeowner’s insurer of residential property that had incurred fire damage as a result of the wrongful act of the owner, was
The background of the case may be summarized as follows. Krystyna Matsunaga owned residential property in Springfield which was subject to a first mortgage to Chicopee and a second mortgage to the Money Store. Hingham Mutual insured the property under a standard homeowner’s insurance policy with the two mortgages noted on the declarations page in the order of their priority, Chicopee as the first lien, and the Money Store as the junior lien. Matsunaga intentionally damaged the property by setting off an explosion. Hingham Mutual properly refused to pay Matsunaga because of her wrongful act. Hingham Mutual determined that the actual cash value of the loss was $40,648.40, and it paid Chicopee $40,600, the full amount owed Chicopee on its first mortgage.
Hingham Mutual, as assignee of Chicopee’s rights, conducted a foreclosure sale of the property. The Money Store was represented at the sale, but did not bid. Hingham Mutual purchased the property at the foreclosure sale and eventually resold it to a third party. The foreclosure and resale netted Hingham Mutual $21,558. The Money Store did not make a formal claim for damages against Hingham Mutual.
The Money Store filed a complaint in the Superior Court against Hingham Mutual and Chicopee asserting that Hingham
1. Hingham Mutual’s policy is a standard form homeowner’s insurance policy issued in accordance with G. L. c. 175, § 99, Twelfth. The pertinent provisions of the policy appear in a section entitled “Mortgage Clause,” and read as follows:
“If a mortgagee is named in this policy, any loss payable under Coverage A or B will be paid to the mortgagee and you, as interests appear. If more than one mortgagee is named, the order of payment will be the same as the order of precedence of the mortgages ....
“If we pay the mortgagee for any loss and deny payment to you:
“a. we are subrogated to all the rights of the mortgagee granted under the mortgage on the property; or
“b. at our option, we may pay to the mortgagee the whole principal on the mortgage plus any accrued interest. In this event, we will receive a full assignment and transfer of the mortgage and all securities held as collateral to the mortgage debt.
“Subrogation will not impair the right of the mortgagee to recover the full amount of the mortgagee’s claim.”
These provisions, if unambiguous, are to be construed according to their plain meaning. Somerset Sav. Bank v. Chicago Title Ins. Co., 420 Mass. 422, 427 (1995). Cardin v. Royal Ins. Co., 394 Mass. 450, 453 (1985). “This is consistent with our longstanding policy that the rules governing the interpretation of insurance contracts are the same as those governing the interpretation of any other contract.” Id., and cases cited. We also keep in mind in considering the application of the provisions to this case that the relevant policy language is the same,
There is nothing ambiguous in the provisions of Hingham Mutual’s policy set forth above. The policy provisions recognize that the policy may provide coverage to multiple mortgagees (“If more than one mortgagee is named, the order of payment will be the same as the order of precedence of the mortgages . . .”). The policy provisions do not provide for any rearrangement of the priorities of mortgagees, if a first mortgagee is paid before a junior mortgagee. The policy provisions expressly direct Hingham Mutual to pay any mortgagee named therein and, at Hingham Mutual’s option, either to invoke that mortgagee’s subrogation rights or upon payment to the mortgagee of all monies due to receive a full assignment and transfer of the satisfied mortgagee’s rights. Hingham Mutual chose the second option (payment of all monies due Chicopee), and it received a full assignment of Chicopee’s first mortgage. When Hingham Mutual exercised that option, the debt to Chi-copee was not extinguished. See Allen v. Watertown Fire Ins. Co., 132 Mass. 480, 483 (1882). See also Neises v. Solomon State Bank, 236 Kan. 767, 779-780 (1985); Auto-Owners Mut. Ins. Co. v. Newman, 851 S.W.2d 22, 27 (Mo. Ct. App. 1993); Commercial St. Ins. Co. v. Hitson, 73 N.M. 328, 333 (1963); Northwest Farm Bur. Ins. Co. v. Althauser, 90 Or. App. 13, 16-17 (1988). As a result of the assignment, Hingham Mutual succeeded to all the rights held by Chicopee to enforce the debt to it against the property (and to the detriment of junior liens) under the terms of the first mortgage.
Hingham Mutual was not required to exercise its rights as as-signee only for the benefit of the Money Store. Hingham Mutual was insuring physical risks to the property and not the Money Store’s mortgage and debt. The Money Store should have been aware of these facts. If any loss was payable to mortgagees under the policy, the Money Store was on notice that Chicopee stood first in order of preference, and payment in full to Chi-copee allowed Hingham Mutual, as assignee, to exercise all of Chicopee’s rights against the Money Store. Put differently, based on the policy language, the Money Store could harbor no reasonable expectation that Hingham Mutual’s policy would fully protect the Money Store’s security. See generally East Boston Sav. Bank v. Ogan, 428 Mass. 327, 331 (1998) (“A second mortgagee . . . accepts risks inherent in that security”).
2. As has been discussed, resolution of the controversy rests on an interpretation of the standard form homeowner’s insurance policy provisions, specifically the assignment and subrogation provisions and the nonimpairment clause, in a multiple mortgagee setting. There is little case law on the issue raised in this case. Two courts have held that a junior mortgagee takes priority over an insurer that has paid the senior mortgagee the value of the mortgage and taken an assignment of that mortgage. See Perretta v. St. Paul Fire & Marine Ins. Co., 106 Mise. 91, 100-101 (N.Y. Sup. Ct.), aff’d, 188 A.D. 983 (N.Y. 1919); Mutual Fire Ins. Co. v. Dilworth, 167 Md. 232, 239 (1934). We
As a matter of policy, we also note that, if we were to follow the decisions in these cases, insurers might be reluctant to insure second mortgagees because the insurers would lose the option of paying the mortgage debt to the first mortgagee and taking an assignment of that mortgage to recoup their losses. This might lead to lending institutions not issuing second mortgages to homeowners.
The Appeals Court placed reliance on Eddy v. London Assur. Corp., 143 N.Y. 311 (1894), and First Fed. Sav. & Loan Ass’n v. Hartford Fire Ins. Co., 100 N.J. Super. 252 (1968). Money Store/Mass., Inc. v. Hingham Mut. Fire Ins. Co., 46 Mass. App. Ct. 636, 641 (1999). These decisions are not helpful because both deal with a mortgage clause and a non-impairment provision in the context of a single mortgagee. The First Federal case, a short per curiam decision dealing with multiple insurance companies refusing to pay a single mortgagee after denying liability to the mortgagor, stands for the unremarkable proposition that under a mortgage clause an insurer’s rights are subordinate to those of a single mortgagee, and the insurers are entitled to an assignment only if they pay the mortgage debt in full. First Fed. Sav. & Loan Ass’n v. Hartford Fire Ins. Co., supra at 254-255. The Eddy case, in which a single mortgagee
3. We have considered the arguments made by the Money Store in support of its position. The Money Store’s main contention is that, for a variety of reasons, Chicopee should have applied the money it received from Hingham Mutual to Matsuna-ga’s mortgage debt. As discussed above, unambiguous
4. The judgment is vacated. A new judgment is to be entered declaring that Hingham Mutual and Chicopee owe nothing to the Money Store.
So ordered.
By reason of G. L. c. 175, § 99, an owner’s wrongful conduct does not cut off the rights of mortgagees to claim against the mortgagee loss payable clause of a fire insurance policy.
The interpretation that the nonimpairment provision applies only to the subrogation option requires no historical justification because its language speaks for itself. The interpretation is supported, however, by the language of the New York standard fire insurance policy on which the “Mortgage Clause” in Hingham Mutual’s policy is based. The New York standard fire insurance policy was introduced in 1943, and was the forerunner of the present provision. See 3 S.A. Cozen, Insuring Real Property § 52.01, at 52-3 (1999). The original provision read as follows: “If this Company shall claim that no liability existed as to the mortgagor or owner, it shall, to the extent of payment of loss to the mortgagee, be subrogated to all the mortgagee’s rights of recovery, but without impairing mortgagee’s right to sue, or it may pay off the mortgage debt and require an assignment thereof and of the mortgage . . .” (emphasis supplied). Id. at § 52.04[1], at 52-17.
The intent of the nonimpairment language, then as now, relates only to the insurer’s subrogation to the mortgagee’s rights of recovery, the mortgagee’s “right to sue.” That language was not intended to modify the insurer’s rights as an assignee of a mortgagee.
The single mortgagee owned three separate mortgages on the property at issue.