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FIREMAN'S FUND INS. CO. v. APPALACHIAN INS. CO.

October 7, 1983

FIREMAN'S FUND INSURANCE COMPANY
v.
APPALACHIAN INSURANCE COMPANY



The opinion of the court was delivered by: BECHTLE

 BECHTLE, J.

 This insurance suit requires the Court to resolve a question of whether one or two policies of insurance was in effect at the time the insured property was damaged by fire. The plaintiff and defendant insurance companies have submitted cross motions for summary judgment in conjunction with a mutually agreed upon statement of the case. For the reasons set forth below, defendant's motion will be granted and plaintiff's motion will be denied.

 I. Facts

 The subject of this suit is certain real property located in Elkton, Maryland, referred to by the parties as the "Deer Dale Property." In October of 1977, this property was conveyed to Jay Brinsfield, Leonard Lockhart and Lowell McCoy, who had secured a $415,000.00 mortgage for the purchase with The Independence National Bank of Gastonia, North Carolina ("Bank" or "Mortgagee"). Upon purchase, the Deer Dale Property was leased to Akers Motor Lines, Inc. ("Akers"), the company which had been the tenant of the prior owner. The lease was for a five year term, beginning on October 1, 1977. Section 13 of the lease required Akers, a lessee, to carry fire insurance on the premises in the amount of $400,000.00. Pursuant to this provision, Akers procured insurance for the Deer Dale Property with defendant, Appalachian Insurance Company ("Appalachian"). The Bank was named as loss payee in its capacity as mortgagee, and a copy of the policy as well as a certificate of insurance was sent to the Bank by Appalachian in July of 1978. On September 15, 1978, the Deer Dale Property was deleted from the Appalachian policy at Akers' request. *fn1" The cancellation was effective August 1, 1978. No premium payments were received by Appalachian from Akers for coverage of the Deer Dale Property after August 11, 1978. On September 28, 1979, other insured locations on the Appalachian policy were also deleted at Akers' direction. This resulted in complete cancellation of the policy. On October 5, 1979, the insured, Akers, returned the policy to Appalachian as requested and the cancellation became effective October 15, 1979. A return premium of $448.00 was paid by Appalachian to Akers on October 23, 1979. No written or oral notice of cancellation of the policy or written or oral notice of deletion of the Deer Dale Property from the Appalachian policy was sent to or received by the Mortgagee, Independence National Bank. The Bank was never requested to, nor did it, return the Appalachian policy to Appalachian.

 On February 27, 1979, Lowell McCoy added the Deer Dale Property to an insurance policy issued by plaintiff, Fireman's Fund Insurance Company ("Fireman's Fund"), to McCoy Lincoln-Mercury, Inc., of which Lowell McCoy was president. The coverage amount was set at $475,000.00 (building) and $50,000.00 (contents). An annual premium was charged and received by Fireman's Fund for the insurance provided by its policy covering the Deer Dale Motel. The premium charged did not reflect the possible existence of other similar insurance coverage on the Deer Dale Property.

 On September 7, 1979, a certificate of insurance was issued by Fireman's Fund and received by Mortgagee, Independence National Bank, certifying the existence of a Fireman's Fund policy providing coverage for the Deer Dale Property. The Bank did not, at any time prior to receiving the certificate from Fireman's Fund, request that additional insurance coverage be procured to protect the Bank's interest in the Deer Dale Property. The amount of coverage provided by Fireman's Fund exceeded the Bank's interest in the property.

 
. . . The Independence National Bank, Gastonia, N.C., as mortgagee, do[es] hereby assign and subrogate the American Automobile Insurance Company [Fireman's Fund] to all of the rights, claims and interest which the insured may have against any person, corporation or association liable for the loss mentioned above . . . .

 The Bank took no further action against Appalachian as a result of the fire.

 After paying out on the fire loss, Fireman's Fund contacted Appalachian and demanded $106,000.00 from Appalachian claiming that this amount represented a pro rata share of the $200,000.00 Fireman's Fund paid to the Bank. Fireman's Fund based its demand on the fact that Appalachian failed to notify the Bank that the Appalachian policy was cancelled. Fireman's Fund argues that because of this omission, the Appalachian policy was in full force and effect as to the Bank at the time of the fire.

 II. Discussion

 The Appalachian insurance policy issued to Akers included the following language in its mortgage clause:

 
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 ...

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