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

This is a casualty insurance case. A bank had a mortgage on residential property. The homeowner stopped making payments on the mortgage, abandoned the property, and allowed the homeowner’s insurance coverage on the property to lapse. The bank, in order to protect its interest in the property, purchased insurance coverage on behalf of the homeowner. The bank later sold the mortgage to a third party and cancelled the insurance coverage. The new mortgagee purchased insurance coverage for the property. Shortly thereafter, the property burned, resulting in a total loss. The new mortgagee’s insurance company filed the instant lawsuit, asking for a declaratory judgment that the prior insurance policy was still effect at the time of the fire. The trial court held that the prior policy was not in effect at the time of the fire. The new insurance company appealed, arguing that, in the course of the purchase, the prior insurance coverage had transferred to the new mortgagee as assignee of the prior mortgage holder, and that the bank’s cancellation of the prior insurance policy was ineffective. We affirm, finding that the prior insurance coverage was not transferred to the new mortgage holder and that the prior insurance policy was not in effect at the time of the fire.