No. 91-087
IN THE SUPREME COURT OF THE STATE OF MONTANA
1992
EDWARD C. MUSSELMAN and
PAULINE L. MUSSELMAN, husband and wife,
Plaintiffs and Respondents,
MOUNTAIN WEST FARM BUREAU
MUTUAL INSURANCE COMPANY,
Defendant and Appellant.
APPEAL FROM: District Court of the Tenth Judicial District,
In and for the County of Fergus,
The Honorable Peter L. Rapkoch, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Laurence R. Martin and Randall G. Nelson;
Felt, Martin, Frazier & Lovas, Billings, Montana.
For Respondents:
Robert L. Johnson, Attorney at Law,
Lewistown, Montana.
submitted on Briefs: September 19, 1991
3aN I 6 1992. Decided: January 16, 1992
CLERK OF SUPREME C O U R T
STATE OF IVIONTCINA
CLerk
Justice William E. Hunt, Sr., delivered the opinion of the Court.
Appellant Mountain West Farm Bureau Insurance Company appeals
from an order of the Tenth Judicial District Court, Fergus County,
granting respondents Edward and Pauline Musselman's, cross-motion
for summary judgment. The District Court found that respondents
purchased a fire insurance policy from appellant. The policy
extended coverage to the respondents' house at an agreed value of
$66,000. The house was totally destroyed by fire. The appellant
paid respondents only $50,000 of the agreed value. The District
Court ruled that 33-24-102, MCA, the valued policy statute,
controls and entered a judgment against appellant of $18,777 which
included interests and costs. We affirm.
The appellant raised the following issues on appeal:
1. Whether the District Court erred when it held that
33-24-102, MCA, controls and that respondents were entitled to
payment under their insurance policy in an amount equal to the
agreed property value of $66,000.
2. Whether the District Court erred when it did not enforce
the pro rata clause contained in the respondents' fire insurance
policy.
The parties have agreed to the following facts which are
uncontroverted by the record. In May 1988, respondents purchased
from appellant a fire insurance policy covering certain property in
Fergus County, as well as a house located in Hamilton. By the
terms of the policy, appellant valued the house at $66,000 and
agreed to insure the house for that amount should the house be
considered a total loss.
Apparently the only road to the house went through some
neighboring property. The neighbor closed the road. The
respondents attempted to gain access to the house through
litigation but were unsuccessful.
On September 23, 1988, respondents agreed to sell the house to
Bill Chesley for $50,000. The contract for sale was handwritten by
one of the parties to the sale, and it is not disputed by the
parties to this appeal that it is a valid contract for sale.
Respondents notified appellant about the transaction with Chesley
and continued their coverage to protect their interest in the home.
Sometime later Chesley was able to obtain access to the house.
Chesley then purchased a fire insurance policy from Farmers
Insurance Group (hereinafter "FIGw) to protect his equitable
interest in the house. The policy had an agreed value of $109,000.
Chesley then assigned "Ed Musselmanu as loss payee to receive the
proceeds under the FIG policy to the extent of whatever unpaid
balance on the home Chesley should owe to the respondents. Chesley
made only two payments on the contract for sale before defaulting.
On March 3, 1989, a fire totally destroyed the house. No
criminal activity was involved. Both insurance policies were in
effect at the time of the fire.
Initially, FIG refused to pay the respondents, arguing that
the contract for sale was not valid and that Chesley did not have
an insurable interest. Respondents initiated litigation against
FIG upon which FIG paid respondents the amount of Chesley's unpaid
balance on the home, plus interest for a total of $51,330. On
July 17, 1989, appellant remitted $50,000 of the agreed value of
$66,000. Appellant claimed that respondents were only entitled to
proceeds equal to their insurable interest which appellant argues
is the amount agreed to in the contract for sale, i.e., $50,000.
On February 9, 1990, respondents filed their complaint in
District Court requesting that appellant pay the remaining balance
of the agreed value stated in the insurance policy. On April 20,
1990, appellant filed its answer and counterclaim. On May 1, 1990,
respondents motioned the court for summary judgment pursuant to
Rule 56, M.R.Civ.P. On May 22, 1990, appellant filed a
cross-motion for summary judgment and a motion for summary judgment
on its counterclaim. On September 10, 1990, a hearing was held on
the motions. On January 7, 1991, the District Court granted
respondents' motion for summary judgment on their complaint and
against appellant's counterclaim. The District Court ruled that
5 33-24-104, MCA, controls and entered a judgment against the
appellant for a sum of $18,648, which included interest, and an
additional $129 for costs. Appellant appeals from the adverse
ruling.
For the District Court to grant summary judgment the record
must not contain any genuine issue of material fact. Rule 56(c),
M.R.Civ.P. Initially, the burden rests with the moving party to
prove that no genuine issue of fact exists. Once that is done,
then the burden shifts upon the nonmoving party to present facts of
a substantial nature that a material issue of fact indeed does
exist.
In order for this Court to determine whether a district
court's granting of summary judgment was proper, we must determine
whether there is any genuine issue of material fact. If there is
not, then the moving party is entitled to summary judgment as a
matter of law. Reagan v. Union of California (1984), 208 Mont. 1,
6, 675 P.2d 953, 956. The moving party is entitled to judqment on
the law applicable to the facts established by the pleadings,
depositions, answers to interrogatories, and admissions in the
record. Jordan v. Elizabeth Manor (1979), 181 Mont. 424, 428, 593
P.2d 1049, 1052.
I
Whether the District Court erred when it held that
5 33-24-102, MCA, controls and that respondents were entitled to
payment under their insurance policy in an amount equal to the
agreed property value of $66,000.
We begin our analysis with the doctrine of equitable
conversion. Under the doctrine, a contract of purchase and sale of
real estate vests the entire beneficial interest in the land with
the buyer. During the course of the contract, the seller retains
a legal title to the land as security for the purchase price. The
buyer's interest is a real interest, while the seller's interest is
one of personal property in the purchase price. Sharbono v . Darden
(1984), 220 Mont. 320, 324, 715 P.2d 433, 435. Here, the
respondents had an interest in the property to insure, as did
Chesley. With this point in mind, we will analyze appellant's
various arguments.
Appellant argues that the insurable interest statue of
5 33-15-205, MCA, conflicts with the valued policy statute of
5 33-24-102, MCA, and that 5 33-15-205, MCA, should control, and
that the terms of the insurance policy itself limit the respondents
to their insurable interest stated in the contract for sale with
Chesley. Appellant alleges that it is liable to the respondents
only for the insurable interest of the house which is established
by the contract for sale and not the agreed value stated in the
insurance policy. We disagree.
Section 33-24-102, MCA, states in part:
Whenever any policy of insurance shall be written to
insure any improvements upon real property in this state
against loss or damage and the property insured is
considered to be a total loss, without criminal fault on
the part of the insured or his assigns, the amount of
insurance written in such policv shall be taken
conclusivelv to be the true value of the prowertv insured
and the true amount of loss and measure of damages.
[Emphasis added.]
In Britton v. Farmers Ins. Group (1986), 221 Mont. 67, 72-73,
721 P.2d 303, 307, we commented that the "statute determines
automatically and conclusively the amount of loss recoverable for
total loss," and that it "may obviate even the necessity of a proof
of 1 0 ~ s . ~ ~ law prevents insurers from creating a question of
The
total loss "to compromise its duty to pay the full amount or to
negotiate a lesser amount." Britton, 721 P.2d at 307.
The enactment of valued policy laws in several jurisdictions
rests almost entirely on public policy grounds. The purpose of the
statute is to protect the insured by relieving him of the burden of
trying to prove the value of a house. 45 C.J.S. Insurance § 916
(1946).
Appellant claims that the terms of the insurance policy limit
the recovery to the respondents' insurable interest. The disputed
fire insurance policy contained the following clause:
Insurable interest and Limit of liability.
Even if more than one person has an insurable interest in
the property covered, we shall not be liable:
a. To the insured for an amount greater than the
insured's interest; nor
b. For more than the applicable limit of liability.
We agree with the Michigan Supreme Court's position in Wilson
v. Fireman's Insurance Company (Mich. 1978), 269 N.W.2d 170, where
the court held that despite language in the insurance policy
similar to the one quoted above, the insurer was required to pay
the insured land contract seller the full amount stated under the
policy. In that case, the court held that the seller maintained
insurance on the property after the sale, no evidence was
introduced that the premium was less than the usual for such a
house, as would happen only if a debt was due to the seller, and
that the risk to the insurer was not increased by the transaction.
Wilson, 269 N.W.2d at 172.
In the case before us, respondents informed the appellant's
agent about the contract for sale with Chesley. No evidence in the
record indicated that appellant's risk was increased, nor did it
adjust the respondents ' premium after the transaction. We hold
that the terms of the insurance policy do not necessarily limit the
respondents to the unpaid balance of the contract.
II
Whether the District Court erred when it did not enforce the
pro rata clause contained in the respondents' fire insurance
policy.
In McCarter v. Glacier Gen. Ass. Co. (1976), 169 Mont. 269,
273, 546 P.2d 249, 251, we noted that pro rata policies are not
unlawful per se but are generally valid and enforceable. The
clause appellant is referring to stated the following:
Other Insurance. If you are carrying other insurance on
the property to which this policy applies, the coverage
under this policy is null and void. We may permit other
insurance, however, by endorsement to this policy. If
other insurance is permitted, we will not be liable for
a greater portion of any loss than our pro rata share on
excess of any deductible.
Appellant argues that the second and third sentences of the
proration clause apply to the facts of this case and that the term
"other insurance'' means insurance carried on the property by
anyone. However, we note that this case involves two separate
individuals insuring two entirely different interests. A leading
treatise on insurance law has discussed the effect of other
insurance clauses relating to these facts.
By definition, other or double insurance exists where two
or more policies of insurance are effected upon or cover
the same interests in the same property, against the same
risks, and in favor of, or for the benefit of, the same
person. As all of these conditions must concur, it
follows that if different Dersons have different
interests in the same subject of insurance, each may
insure his interest without effecting other or double
insurance. [Emphasis added.]
Couch on Insurance 2d (Rev Ed) 9 37B:104 (1985).
In this instance, we have two separate interests being
insured. Chesley assigned his right to proceeds from his insurance
policy to the respondents. The assignment has allowed respondents
to receive insurance benefits in excess of the value of the home
and property. Although this type of situation works against the
justification for insurance which is one of indemnification and not
profit, we believe that insurance companies are in a better
position to draft policies to prevent such occurrences as what
happened here.
Affirmed. /
Justice
We concur:
Chief Justice
January 16, 1992
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:
Laurence R. Martin and Randall G. Nelson
Felt, Martin, Frazier & Lovas
P.O. Box 2558
Billings, MT 59103-2558
Robert L. Johnson
Attorney at Law
Ste. 507, Montana Bldg.
Lewistown, MT 59457
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA
BY:
Deput