An insurance company issued a property insurance policy to the policyholder defendants, listing the Veterans Administration as the mortgagee under a standard mortgage clause. The policy contained the following provision regarding additional insurance:

Other Insurance: Unless otherwise provided in writing added hereto, other insurance covering on any building which is the subject of insurance under this policy, is prohibited. If during the term of this policy, the insured shall have any such other insurance, whether collectible or not, and unless permitted by written endorsement added hereto, the insurance under this policy shall be suspended and of no effect.

The policyholders purchased another policy on the property. A loss occurred. The insurance company refused to pay the policyholders because of the clause but paid the Veterans Administration as the mortgagee. The court noted these facts:1

Plaintiff paid the Veterans Administration on September 29, 1965, and instituted this action against the defendants November 30, 1967, to recover the amount so paid from defendants, alleging it was legally subrogated to all the rights of the Veterans Administration against defendants.

The record does not disclose any provision in the policy or mortgage imposing a personal obligation upon the defendants to reimburse plaintiff for either a partial or total payment of the mortgage debt, the only provision being that in the event of payment of the entire mortgage, plus interest, the Company would receive an assignment of the mortgage security.

The court ruled that the insurance company could not collect against its policyholders for the following reasons: 

There is no policy provision providing for personal liability against the defendants, but the mortgage clause does subrogate the company to the ‘rights’ of the Veterans Administration ‘under all securities held as collateral’ upon payment to them if there is no liability to the defendants under the policy. These securities were the defendants’ note and mortgage for $15,000.00, which could not be partitioned and which the Veterans Administration was entitled to hold until its loan was fully paid.

The only ‘rights’ that the Veterans Administration had involving the defendants were those it acquired by virtue of the note and mortgage executed by defendants, which was not in default at any time. Obviously, the Veterans Administration had no right to sue defendants under its mortgage for the $6,200.00, and consequently there was nothing plaintiff could acquire from the Veterans Administration unless it paid the entire balance due on its loan and acquired defendants’ note and mortgage. In no event would plaintiff acquire any right to sue defendants for $6,200.00, but could only proceed to foreclose under the mortgage security in the event of a default of the mortgage debt.

The result may have been different if the insurance company had fully paid the mortgage and been assigned the rights to the mortgage. For those readers wishing to know more about how the standard mortgage clause differs from the loss payable clause, please read Loss Payable Clauses and Standard Mortgagee Clauses: Know the Basic Rule and Difference

I want to give a shout-out to Merlin Law Group veterans Rece Gassery and Todd Frederick. 

Thought For The Day 

We remember those who were called upon to give all a person can give, and we remember those who were prepared to make that sacrifice if it were demanded of them in the line of duty, though it never was. Most of all, we remember the devotion and gallantry with which all of them ennobled their nation as they became champions of a noble cause.

—Ronald Reagan

1 MFA Mutual Ins. Co. v. Huddleston, 459 S.W.2d 104 (Mo. App. 1970).