The VALLEY NATIONAL BANK OF ARIZONA, a national banking association, Curt M. Kinshella, d/b/a Wholesale Building Materials, Inc., Wholesale Building Materials, Inc., an Arizona corporation, Plaintiffs-Appellants, v. INSURANCE COMPANY OF NORTH AMERICA, a foreign corporation, Defendant-Appellee.
No. 1 CA-CV 89-578.
Court of Appeals of Arizona, Division 1, Department E.
March 3, 1992.
Reconsideration Denied April 21, 1992.
Review Denied Sept. 22, 1992.
836 P.2d 425
Because appellees presented no evidence showing that decedent complied with the required method of revocation, the inter vivos trust was not revoked and remained valid.
IV.
For the foregoing reasons, we affirm the trial court‘s ruling that decedent revoked his will and died intestate, reverse the court‘s ruling that decedent revoked his trust agreement and the amendments thereto, and remand for proceedings consistent with this opinion.
GERBER, P.J., and MELVYN T. SHELLEY, Retired Judge, concur.
NOTE: MELVYN T. SHELLEY, Retired Judge was authorized to participate in this appeal by the Chief Justice of the Arizona Supreme Court pursuant to
Holloway & Thomas, P.C. by Benjamin C. Thomas and Thomas P. Burke, II, Phoenix, for defendant-appellee.
OPINION
CLABORNE, Presiding Judge.
The issue in this case is whether there was an effective cancellation of a property casualty insurance policy issued by Insurance Company of North America (“INA“) involving the interest of Valley National Bank of Arizona (“VNB“) as mortgagee payee. We hold there was not, and reverse.
VNB filed a declaratory judgment action claiming that it was entitled to payment from INA for losses to VNB‘s interest as the mortgagee of property of Wholesale Building Materials, Inc. (“WBM“) which was damaged by a fire. INA‘s defense was that it had canceled the policy because of WBM‘s failure to pay the required premiums. The trial court, after hearing evidence and reviewing stipulated facts, found in favor of INA.
The facts which control this action are straight forward and are really not in dispute.1 INA issued its policy of insurance which dealt with fire protection to WBM, and VNB was named as a mortgagee payee. A notice of cancellation for nonpayment of premiums was sent to WBM on May 28, 1985, and it indicated that the effective date of the cancellation was June 10, 1985. A copy of this notice was re-
The policy upon which the position of each party was based reads in pertinent part:
MORTGAGEE AND TRUSTEE INTEREST
If there is a loss to any real property covered under YOUR PROPERTY COVERAGE, we will pay any mortgagee or trustee named in the Declarations up to his, her, or its interest in that property. This provision will apply to all present or future mortgages in the order of precedence of these mortgages.
Regarding the interest of any mortgagee or trustee designated in the Declarations, this insurance will not be invalidated by any of the following:
- any act or neglect by any mortgagor or owner of the property;
- foreclosure or other proceedings, or notice of sale relating to the property;
- change in the title or ownership of the property; or
- occupation of the premises for purposes more hazardous than existed when this insurance took effect.
The mortgagee or trustee must notify us of any change of ownership or occupancy, or of any increase in hazard which he, she or it learns about. If we require, the policy will be amended to reflect this change. If you fail to pay any premium due because of an increase in hazard, the mortgagee or trustee must pay this premium.
And if you fail to pay any premium due under this policy, we have a right to collect the premium from the mortgagee or trustee. (Emphasis added.)
It seems clear that “you” means the insured and not the mortgagee.
The only language in the policy discussing cancellation of the policy by the insurer provides as follows:
Our Cancellation
We can cancel the policy by sending to you, at the address shown in the Declarations, notice of the effective date of cancellation. We must do this at least 45 days prior to the cancellation date unless we are cancelling [sic] the policy because you failed to pay your premiums. In that case we will give you only 10 days’ notice. Mailing or delivery of the notice will be proof that you were informed of the cancellation. We will also notify any mortgagee shown in the Declarations. (Emphasis added.)
We will then refund any unearned portion of the premium you paid, on a pro rata basis.
We may refund the unearned premium at the time of cancellation or as soon as reasonably possible after the cancellation. However, regardless of when you receive the refund, the cancellation of the policy will take effect as provided above.
There is no indication that VNB had any communication with INA concerning cancellation other than its receiving a copy of the notice.
The trial court found that the policy had been effectively canceled before the loss. Based on the arguments presented, the trial court must have reasoned that VNB was not entitled to forty-five days notice before effective cancellation because the clause in the policy indicated that if the reason for cancellation was non-payment of premium, only ten days notice was required. The trial court rejected the bank‘s position that the ten-day notice only applied to the insured and not the mortgagee payee, and that the normal forty-five-day notice provided in the same paragraph applied to it.3
The first question which must be asked is what is a mortgagee payee? The language contained in this policy is known as the New York, standard or union mortgage clause. See 5A John A. Appleman & Jean Appleman, Insurance Law and Practice § 3401, at 282 (1970). A mortgagee payee is different than what is normally called a loss payee under this type of policy. This difference is explained in Granite State Ins. Co. v. Employers Mut. Ins. Co., 125 Ariz. 275, 277-78, 609 P.2d 90, 92-93 (App.1980):
5A J. Appleman, Insurance Law and Practice discusses the various types of payee clauses. A loss payee is defined in § 3335 as:
[A] mere appointee to receive the proceeds to the extent of his interest . . . dependent upon the existence of an insurable interest in such appointee . . . it makes the policy subject to any act or omission of the insured which might void, terminate, or adversely affect the coverage; and if the policy is not collectible by the insured, the appointee, likewise, cannot recover thereunder.
In contradistinction with a basic loss payee whose rights are totally derivative, a mortgagee payee has an independent agreement with the insurer. Appleman, Id., discusses this in § 3401 as follows:
[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 the insurer has entered into a separate contract with the mortgagee just as if the latter had applied for insurance entirely independently of a mortgagor.
In a loss payee context, the loss payee‘s rights are derivative, while in a mortgagee payee context, there is a separate contract between the insurer and the mortgagee which is independent from the insurer-named insured relationship. See Fidelity-Phenix Fire Ins. Co. v. Garrison, 39 Ariz. 277, 281, 6 P.2d 47, 48 (1931).5
It is also important to recognize that when dealing with an insurer‘s right to cancel a policy of insurance containing a standard mortgagee clause, there must be strict compliance with the terms of the agreement between the insurer and the mortgagee. American Mercury Ins. Co. v. Inland-Western Fin. Co., 6 Ariz.App. 409, 411, 433 P.2d 60, 62 (1967).
It is important to realize that one purpose behind the clause is to protect the mortgagee (VNB) from the whims of the debtor; in this case, WBM‘s failure to pay its insurance premium. See 5A Appleman, supra, § 3401, at 292-93.6
The Arizona Supreme Court, on more than one occasion, has indicated that when examining the language in an insurance policy to determine the duties of the parties, the purpose of the policy provisions in question, the purpose of the transaction as a whole, and public policy considerations are of prime importance. See State Farm Mut. Auto. Ins. Co. v. Wilson, 162 Ariz. 251, 253, 782 P.2d 727, 729 (1989).
The purpose of the cancellation provisions in the policy is to give INA the right to cancel its indemnity agreement with its insured, WBM, if WBM fails to pay the premiums. If cancellation of the agreement is on other grounds, the agreement provides that forty-five days notice is to be given. The policy clearly indicates that “you” means the insured WBM. Since the agreement between INA and the bank as a mortgagee payee is a separate contract, we must see if the policy specifically provides a time period for cancellation of the mortgagee payee‘s interest.
Neither the policy nor the facts before the trial court evidenced any specific provision concerning what time period would be required between the insurer and VNB when the insured WBM didn‘t pay its premiums. INA argues that if no time limit is specified for cancellation, we should adopt a reasonable time by implication. INA reasons that because
The cases cited by INA to support its contention that a ten-day time period should be sufficient contain clear language spelling out how an insurer may cancel the interest of a mortgagee. For example, in Travelers Indemnity Co. v. Storecraft, Inc., 491 S.W.2d 745, 747 (Tex.App.1973), the policy provided: “This policy may be cancelled as to the interest of any mortgagee named herein by giving such mortgagee ten days written notice.” (Emphasis added.) Similarly, in Fort Hill Fed. Sav. & Loan Ass‘n v. South Carolina Farm Bureau Ins. Co., 281 S.C. 532, 316 S.E.2d 684, 686 (App.1984), the policy specified:
This Company reserves the right to cancel this policy at any time as provided by its terms, but in such case this policy shall continue in force for the benefit only of the mortgagee (or trustee) for 10 days after notice to the mortgagee (or trustee) of such cancellation and shall then cease, and this Company shall have the right, on like notice, to cancel this agreement. (Emphasis added.)
In Mutual Creamery Ins. Co. v. Iowa Nat‘l Mut. Ins. Co., 294 F.Supp. 337, 342 (D.Minn.1969), a case which was later reversed in 427 F.2d 504 (8th Cir.1970), the policy spelled out the method of canceling the mortgagee‘s interest thusly:
If loss hereunder is made payable, in whole or in part, to a designated mortgagee not named herein as insured, such interest in this policy may be canceled by giving to such mortgagee a ten days’ written notice of cancellation. (Emphasis added.)
As stated, INA‘s argument is that since there is no time limit specified in the policy regarding notice to VNB as mortgagee payee, a reasonable time period should be implied and that period should be ten days. The ten-day period is the period required in
We reverse the portion of the trial court‘s judgment which held that the INA insurance policy was properly and effectively canceled as to VNB‘s mortgagee payee interests at the time of the fire loss. Additionally, we reverse the award of costs and attorney‘s fees made against VNB since INA can no longer be considered the successful party on VNB‘s claim against it. We remand to the trial court for entry of judgment declaring that VNB is entitled to insurance coverage to the extent it was a mortgagee payee and awarding VNB its taxable costs, and for a determination by the trial court of whether, in the court‘s discretion, VNB is entitled to attorney‘s fees pursuant to
VNB requests attorney‘s fees as the successful party on appeal, which we grant to it pursuant to
SHELLEY, J., concurs.
JACOBSON, Judge, dissenting.
I must respectfully dissent because the majority opinion appears to rely upon a factual issue that was not raised in the trial court and first surfaced in VNB‘s reply brief; that is, whether VNB was misled by the notice of cancellation it received. This factual issue aside, in my opinion the majority misconstrues the law in this area.
First, as to the factual issue, the majority opinion takes the position that:
[T]here is no evidence that VNB was ever notified that the cancellation of the policy for nonpayment of premiums was to apply to anyone other than the insured. Second, the notice itself never refers to VNB as the mortgagee payee, or that VNB‘s interest is being terminated. Nothing in the notice was sufficient to put VNB on notice that INA was intending to cancel coverage not only to the one who failed to pay the premiums, but also to cancel the interest of the mortgagee payee which was also insured by the same policy.
The issue whether VNB was somehow misled by the cancellation notice was not raised in the trial court. In the trial court, this matter was submitted upon a stipulated set of facts. In so far as the cancellation notice was concerned, that stipulation provided:
7. On May 28, 1985, INA mailed notices of cancellation of the policy to Wholesale Building Materials, Inc. and VNB. The cancellation notices were sent by INA because plaintiff‘s [sic] Kinshella were in default in payment in premium on the policy.
8. The notices stated that the INA policy was being cancelled effective June 10, 1985. A true and correct copy of the notice sent to VNB is attached as exhibit B. . . .
9. VNB received a copy of the notice mailed to it by INA.
The contested issues presented to the trial court by VNB were:
- Whether coverage exists for VNB‘s interests under the INA policy for the fire loss that occurred on July 3, 1985.
- Whether VNB is entitled to forty-five days notice of INA‘s cancellation of the policy based on Kinshella‘s default in the payment of the policy premium.
The issue was never raised whether the notice, by reasons of its terms alone, was insufficient to cancel any interest VNB might have. Rather, the sole issue presented to the trial court was whether VNB was entitled to a 45-day notice, a 10-day notice, or a reasonable notice. This was also the only issue raised in the opening brief on appeal. Only in the reply brief is it first hinted that the notice did not alert VNB as to the reason for cancellation.
The law is well-established that issues not raised in the trial court or raised for the first time in the reply brief on appeal are waived. Quila v. Schafer‘s Estate, 7 Ariz.App. 301, 302, 438 P.2d 770, 771 (1968); see also Rule 13(c), Arizona Rules of Civil Appellate Procedure.
This leaves us with the bare legal issue of the period of time an insurer must extend to a mortgagee payee before its interest can be canceled, where the mortgagor has failed to pay premiums. Again, for ease of reference, the applicable provision of the policy is repeated:
We can cancel the policy by sending to you, at the address shown in the Declarations, notice of the effective date of cancellation. We must do this at least 45 days prior to the cancellation date unless we are cancelling the policy because you failed to pay your premiums. In that case, we will give you only 10 days’ notice. Mailing or delivery of the notice will be proof that you were informed of the cancellation. We will also notify any mortgagee shown in the Declarations. (Emphasis added).
The majority opinion correctly points out that the policy does not contain a specific provision dealing with what type of notice the mortgagee was entitled to receive or how much notice was required. However, a simple reading of the foregoing provision leaves one with the reasonable assumption that the 45-day notice applies to any cancellation reason other than failure to pay premiums, and in that case only a 10-day notice is required and the mortgagee will receive that same type of notice.
Even assuming this provision does not set forth the requisite notice to the mortgagee, then it is submitted that the only case cited by either party that deals with this situation points to the correct resolution. In Standard Fire Insurance Co. v. United States, the court held that where cancellation of a policy is the result of nonpayment of premiums, the interest of the mortgagee payee could not be canceled without giving “reasonable” notice. 407 F.2d 1295, 1299 (5th Cir.1969).
The majority rejects a reasonable notice on the basis among others, that the bank should not be subjected to the whims of its debtor, specifically the failure to pay premiums, citing Appleman. In my opinion, the majority reads too much into the “separate contract” principle. VNB has never contended that INA could not cancel the policy because of the failure of the property owner to pay premiums. The parties’ only disagreement is how much notice VNB was entitled to receive because of this “neglect” by the property owner.
The majority, relying upon the contention that VNB did not receive sufficient notice that its interest was to be canceled, both rejects the clear legislative intent that 10-day notice of cancellation is commercially reasonable,
If public policy reasons are to be examined in determining the reasonableness of the time, then it is submitted that an insured who has mortgaged property and is unable to pay premiums may have an incentive to see that its debts are paid through insurance. Providing a relatively short period of time before such incentives become overwhelming appears to be in the public interest.
I would affirm.
APPENDIX A
P. Rotta
Authorized Signature