Summary Judgment Denied to Mortgage Assignee

COMMERCIAL PROPERTY – UNLISTED MORTGAGEE – ASSIGNMENT OF MORTGAGE
NC Venture I, L.P. v. Valley Forge Ins. Co.
(Sup. Ct., New York Co., decided 8/4/2008)

Most property insurance policies identify the insured property's mortgagee as either a mortgage holder, loss payee or sometimes even an additional insured. Many mortgagee designations or listings also include the "ISAOA" designation, an acronym meaning "its successors and/or assigns", to include and protect, as common in the banking industry, successors in interest to the listed mortgagee or entities to which the mortgage is assigned. The policy in this case apparently did not have such an ISAOA designation.

Complete Analysis, Inc., executed a $480,000 written mortgage in favor of First Union National Bank with respect to its Peekskill, New York, property on October 6, 1987. First Union assigned that mortgage to plaintiff, NC Venture I, LP, on December 13, 2000. Soon afterwards, Complete Analysis defaulted on the mortgage, and NC Venture commenced a foreclosure action against it and the individual shareholder borrowers on the note. On March 26, 2002, Complete Analysis obtained a one-year commercial package policy from Valley Forge, which included property coverage. On August 13, 2002, while a motion for summary judgment in the foreclosure action was pending, the insured property was destroyed by fire.

In addition to pursuing recovery from the borrowers, NC Venture brought this action against Valley Forge for payment under Compete Analysis' policy. NC Venture argued that it became entitled to the policy proceeds in the event of a loss by virtue of the pre-loss assignment of the mortgage. In support of its denial, Valley Forge contended that as a stranger to the insurance contract, NC Venture was entitled to nothing. Plaintiff moved for summary judgment on liability and to dismiss various affirmative defenses asserted by Valley Forge's answer.

The policy at issue contained a clause providing that "[y]our rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual Named Insured." NC Venture contended that the words "you" and "your" when used in the policy referred to the named insured, i.e., Computer Analysis, and not the loss payee/mortgagee First Union. NC Venture also argued that the replacement of one mortgagee by another, neither of which occupied the premises, would in no way affect the insurer’s exposure.

Valley Forge counter-argued that the policy language specifically prohibited any transfer of rights or duties under the policy without its written consent, which was never obtained in this case. In addition, the policy provided:

This policy contains all the agreements between you and us concerning the insurance afforded. The first Named Insured shown in the Declarations is authorized to make changes in the terms of this policy with our consent. This policy's terms can be amended or waived only by endorsement issued by us and made a part of this policy.

In denying NC Venture's motion for summary judgment, New York County Supreme Court Justice Barbara Kapnick held:

While it is settled law in New York that claim proceeds may be assigned after a loss (Ardon Constr. Corp. v Firemen's Ins. Co. of Newark, N.J., 16 Misc2d 483 [Sup. Ct. Kings Co. 1959], aff’d 11 AD2d 766 [2nd Dep’t 1960]), where the policy forbids assignment before a loss without the company’s consent, that condition will be upheld. See, Carle Place Plaza Corp. v Excelsior Ins. Co., 144 AD2d 517 (2nd Dep‘t 1988) ; Holt v Fidelity Phoenix Fire Ins. Co., supra.

Since the Valley Forge insurance policy clearly prohibited any change to the policy without its consent, and further provided that it would only pay the mortgagee or other party in interest who was listed on the Declaration Sheet, which NC Venture clearly was not, plaintiff’s motion for summary judgment on liability and dismissing the defendant's first through fifth, seventh and eighteenth affirmative defenses must be denied.

Valley Forge apparently did not cross-move for summary judgment, and the court made no other rulings. A search of reported cases uncovered no action by Complete Analysis or its individual shareholders against Valley Forge for recovery under the policy. Thus, it appears there will be at least one more motion filed in this action at some point -- by Valley Forge for summary judgment against NC Venture. Res judicata anyone?