Insureds can't collect after fire, but the bank can: Court says policies are written to offer banks greater protection than the homeowner
This week, Wells Fargo Bank prevailed in a claim against Auto-Owners Insurance after a fire in the home of Elizabeth A. Null. Null had lost her claim against the insurer because she had taken over the home and the insurance after her brother went "off the deep end," but had never put the policy in her own name. The Court held that since the original insured, Null's brother, no longer lived in the house [he had gone to jail], the premiums that Null had paid for at least five years did not entitle her to coverage under the policy because the home wasn't the "named insured's" residence.
This week the Court held that the law applies differently to banks, however. The Court examined the language of the Auto Owners policy and determined that even though Wells Fargo originally claimed that its rights were derivative of the insured's claim, Wells Fargo's rights weren't controlled by the outcome of the Null case. The Court pointed out that it could summarily dismiss Wells Fargo's claim, because Wells Fargo did not "preserve" an independent claim, but the judges decided to overlook that deficiency.
The Court ruled that Wells Fargo's recovery depended upon whether the mortgage clause in this policy created an "ordinary" or a "standard" mortgage policy. It concluded that this was not an "ordinary" policy under which the mortgaging bank or lien holder has rights no greater than the insured. Instead, this was a "standard" policy creating a direct duty on the part of the insurer to the bank.
After an extraordinary 19 pages of analysis, the opinion held that Wells Fargo's rights had not been adjudicated in the case brought by the homeowner, and that it was entitled to prove that it had complied with the terms of an independent contract with the insurance company. Summary disposition was overturned and the case sent back for further adjudication.
So insurers and banks write the contracts, courts enforce them as written, and consumers find themselves with less protection than a similarly-situated bank. An insured makes payments for five+ years on an insurance policy that protects only the bank, because the name on the policy is that of a sibling who has moved out. This is justice in Michigan's courts.