Continuing with my study regarding Hawaiian property insurance law while racing toward Honolulu, an unusual case is worthy of discussion.1 It is not often that a claim is made on a boat that is stolen by the legal owner. But Hawaii is an unusual place.
The Hawaii Supreme Court noted the issue:
It is axiomatic that, just as the owner of a building cannot ordinarily recover under his insurance policy for a loss due to fire which he himself intentionally started, Conway cannot recover for his own absconding of his own boat. The question in this case, therefore, is whether a designated loss-payee can recover in just such a situation, where the owner could not. Does appellee have greater rights than Conway were Conway himself the named payee under the policy? This question can be resolved by determining whether what we are confronted with is an open loss payable or a union or standard mortgagee clause.
We have discussed this issue before in Loss Payable Clauses and Standard Mortgagee Clauses: Know the Basic Rule and Difference. The Hawaii court noted similarly:
[T]he difference between the types of loss payable clauses is stated as follows:
There are several different types of common loss payable or mortgage clauses. The open loss payable clause simply states that ‘loss, if any, is payable to B. as his interest shall appear’, or uses other equivalent words, merely identifying the person who may collect the proceeds. However, there is another type variously known as the New York, standard, or union form which contains goes on to state that ‘this insurance, as goes on to state that ‘this insurance, as to the interest of the mortgagee only, shall not be invalidated by any act or neglect of the mortgagor or the owner of the within described property . . .’ Under an open loss payable clause the mortgagee is merely an appointee and such a clause ‘does not specifically protect him (payee) against the acts and omissions of the mortgagor, the effect is to place the mortgagee’s indemnity at the risk of any act and omission of the mortgagor that would void, terminate, or affect the insurance of the latter’s interest under the policy, and the mortgagee cannot recover if the mortgagor cannot.’ 11 Couch, Insurance 2d, s 42:671, at 335-36 (1963). The standard or union mortgage clause on the other hand ‘will specify in some form of language that the insurance with respect to the mortgagee shall not be invalidated by the mortgagor’s acts or neglect.’…
It is evident from the above authorities that in order to create a standard or union mortgagee clause, it is necessary that the insurance policy, or an endorsement thereto, provide that the loss payable mortgagee’s interest is not subject to wrongful or unlawful acts of the insured which would invalidate coverage….
Based on this understanding between various loss payable clauses and simple loss payee clauses, the court made the following ruling for the insurance company:
In the case before us, the policy itself indicated merely who the prior loss payee was and the subsequently attached endorsement indicated that appellee had been substituted as the loss-payee. Nothing was included as to the loss-payee’s interest not being subject to acts of the owner which would invalidate coverage. Given the absence of such language in the policy, it is evident that an open loss payable clause was in effect at the time that appellee suffered its loss. Accordingly, appellee steps into the shoes of Conway and its claim is defeated by the fact that Conway himself perpetrated the loss. This result is in accord with the terms of the policy itself. ‘It is expressly understood and agreed if and when an Assured under this policy has any interest other than as an owner of the vessel named herein, in no event shall the Company be liable hereunder to any greater extent than if such Assured were the owner and were entitled to all the rights of limitation to which a shipowner is entitled.’
Hopefully, at the time of this post’s publication, Merlin and her crew will be somewhere halfway between Los Angeles and Honolulu, with trade winds backing us so Merlin can speedily surf towards a fast finish. Otherwise, the rum supply will be running short.
Thought For The Day
I’m a golfer, and what are the two sports you can do till you drop? Golf and surfing. They’re great for you limber-wise, they’re great for you health-wise, and they put you in sweet locations.