Certain Underwriters At Lloyds, London v. Ted M. Winestone J.B. McDonald & Co. Leonard E. Franklin and Guaranty National Insurance Company

Citation: Not availableDocket: W2003-03025-COA-R3-CV

Court: Court of Appeals of Tennessee; July 13, 2005; Tennessee; State Appellate Court

Original Court Document: View Document

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

In the case of Certain Underwriters at Lloyds, London v. Ted M. Winestone et al., an appeal arose from a casualty insurance dispute involving a mortgage on a residential property. The homeowner, Leonard Franklin, defaulted on his mortgage and allowed the homeowner's insurance to lapse. To safeguard its interests, Regions Mortgage purchased insurance coverage on behalf of Franklin, which was later cancelled after the mortgage was sold to a new lender. The new mortgagee then secured its own insurance. Following a fire that resulted in total loss of the property, the new mortgagee’s insurance company sought a declaratory judgment asserting that the prior insurance policy remained effective at the time of the fire. The trial court ruled that the previous insurance was not in effect, leading to the appeal. The appellate court affirmed the trial court's decision, determining that the prior insurance did not transfer to the new mortgagee and was indeed cancelled before the fire incident. The opinion emphasized that the forced place insurance issued by Guaranty National Insurance Corporation was retroactively effective only for one year from the lapse date of the previous policy.

Regions Mortgage paid an annual premium of $3,696.95 for a policy that allowed retroactive cancellation of coverage. The policy specified that the first Named Insured could cancel by providing written notice, and that any cancellation of a Mortgagor’s Certificate of Insurance required prior notification and adherence to specific timing constraints. By January 2000, Regions Mortgage decided that Franklin would not remedy his mortgage default and referred the case to Stanley Weir of Regions Financial Corp. They opted to sell the mortgage instead of pursuing foreclosure. Regions Mortgage began negotiations to sell the mortgage to J.B. McDonald, a company owned by Ted Winestone.

On March 21, 2000, in preparation to purchase the mortgage, Winestone sought a casualty insurance policy for the Franklin property from George Holley Insurance Company, which obtained coverage from Certain Underwriters at Lloyd’s, London. The Lloyd’s policy contained an "other insurance provision," limiting their liability to losses exceeding other insurance amounts. The Lloyd’s policy was set to take effect on March 21, 2000, while the closing for the mortgage sale was scheduled for March 17, 2000. 

Prior to closing, Weir informed Winestone that forced place insurance would be canceled once the Assignment was recorded, clarifying that the coverage only protected Regions Mortgage. The closing occurred on March 17, 2000, with Winestone paying $345,000 against a balance of approximately $390,000 owed to Regions Mortgage. Following the closing, Regions Mortgage wrote off the balance, marking the Franklin account as "paid-off."

On March 20, 2000, Regions Mortgage requested the cancellation of the policy via electronic transmission, noting "WAIVE-paid-off," which was recorded by Overby-Seawell on March 28, 2000, with a retroactive effective date of March 22, 2000. However, the Guaranty National policy was not canceled at that time, despite Overby-Seawell interpreting the transmission as a cancellation notice. Subsequently, Winestone initiated foreclosure proceedings on the Franklin property in late March 2000.

On April 1, 2000, the Franklin property was completely destroyed by fire. Winestone later reviewed the insurance policy from Lloyd’s and realized it was an owner’s policy, not a mortgagee’s policy. He notified Lloyd’s of the fire on April 6, 2000, and subsequently foreclosed on the property on April 18, purchasing it with his wife. On May 15, 2000, Overby-Seawall, the administrator for the Guaranty National policy, received a cancellation notice for the Franklin policy from Regions Mortgage, retroactively dated to March 22, 2000. Consequently, the Guaranty National policy was canceled on May 15, 2000, with a refund of $1,854.65 issued to Regions Mortgage, which was applied to Franklin's outstanding balance. Franklin was not informed of this cancellation. 

On November 3, 2000, Lloyd’s filed a Complaint for Declaratory Judgment against Winestone, McDonald, Franklin, and Guaranty National, seeking determination of its responsibilities under the policy. Lloyd’s claimed Guaranty National's policy was in effect when the property burned, activating the 'other insurance' clause of Lloyd’s policy. In December 2000, Guaranty National responded, denying coverage for the loss since its policy was canceled before the fire and asserting it had no insurable interest at the time of the loss. Guaranty National later moved for summary judgment, arguing it should be dismissed from the case as no claims were made against it.

Winestone and McDonald filed a third-party complaint against Regions Mortgage, alleging negligence for failing to properly manage the insurance coverage, which allowed Lloyd’s to invoke the 'other insurance' clause. They also claimed against Holley Insurance for not securing the correct type of policy. Additionally, they counterclaimed, seeking a ruling that the Lloyd’s policy covered the loss. On January 17, 2003, Lloyd’s sought partial summary judgment against Guaranty National, asserting its policy was never effectively canceled and remained in force at the time of the fire.

On July 8, 2003, Lloyd's sought to amend its complaint to assert a claim for contribution or indemnification from Guaranty National due to the latter's insurance policy. Lloyd’s also requested partial summary judgment, arguing that Winestone’s foreclosure purchase of the Franklin property reduced the debt owed to him as mortgagee. In September 2003, Guaranty National moved to dismiss and for summary judgment, claiming Lloyd's was time-barred from bringing a claim associated with the fire loss on the Franklin property, which should have been filed within two years per their policy. Guaranty National contended that Regions Mortgage lacked insurable interest at the time of loss and that the 'other insurance' provision in Lloyd’s policy was not applicable, asserting that it only covered losses insured for Winestone.

The trial court allowed Lloyd's to amend its complaint but granted Guaranty National's motions for summary judgment and dismissal, concluding that Regions Mortgage had no insurable interest in the property as of April 1, 2000, that Guaranty National's insurance was not in effect at that time, and that the interests covered by the two policies were different. The court also determined that Guaranty National’s policy did not qualify as 'other insurance' under Lloyd’s policy provisions. Subsequently, the court made the judgment final under Rule 54.02 of the Tennessee Rules of Civil Procedure, noting that other claims remained pending. Lloyd's appealed, arguing that the trial court erred in granting summary judgment because Winestone had been assigned the Guaranty National policy, which was allegedly never effectively canceled, and contended that the amended complaint was not barred by the two-year limitation as it did not present new facts but rather a more specific request for relief.

A motion for summary judgment is granted when the movant proves there are no genuine material fact issues and is entitled to judgment as a matter of law, according to Tenn. R. Civ. P. 56.04. Summary judgment is appropriate only when the facts and legal conclusions allow for only one conclusion (Carvell v. Bottoms). Appeals of summary judgment are reviewed de novo, with no presumption of correctness for the trial court's decision (Bain v. Wells).

Lloyd's argues that Winestone, as an assignee of Regions Mortgage, is covered under the Guaranty National policy, which names the mortgage holder and its assigns as insured. However, the policy’s Declarations page states that coverage is non-transferable without written permission from the insurer, and there is no evidence Guaranty National consented to any assignment. Therefore, this argument is rejected.

Lloyd's also contends that Guaranty National cannot retroactively cancel coverage without written notice. The policy specifies cancellation procedures, requiring notice to the first Named Insured and any interested parties. Lloyd's cites Jefferson Ins. Co. v. Curle, asserting that strict compliance with cancellation procedures is necessary. However, since Regions Mortgage initiated the cancellation, notice to it was not required for effective cancellation. Lloyd’s, not being a named insured or valid assignee, was not entitled to notice.

The policy allows Regions Mortgage to retroactively cancel coverage if notice is given within 60 days of the requested cancellation date. The cancellation occurred within this timeframe, leading to the conclusion that the Guaranty National policy was not in effect on the date of the fire loss.

Finally, Lloyd’s claim that the trial court erred in dismissing their amended complaint for contribution or indemnification is moot, as the earlier findings regarding the invalid assignment and effective cancellation negate the viability of that claim. The trial court's decision is affirmed, with costs taxed to Lloyd’s and its surety, permitting necessary execution.