Date St. Cap., LLC v. Clearcover Ins. Co. – 11/21/2023
Arizona Court of Appeals Division Two holds that a loss payee properly named in a standard loss-payable mortgage clause is entitled to collect under an automobile insurance policy, notwithstanding the insured’s fraud or misconduct in obtaining the policy.
Consumer purchased an automobile, which was financed by Secured Lienholder. The automobile served as collateral for the loan. Consumer obtained an insurance policy on the automobile through Insurer. When obtaining the insurance policy, Consumer made misrepresentations—omitting herself as a driver and taking the policy out in the name of her incarcerated ex-spouse. Later, Consumer filed an insurance claim stemming from damage to the automobile. Insurer denied all coverage, claiming the policy was null and void from its inception and rescinding the policy.
Secured Lienholder thereafter sued Insurer, seeking a judicial declaration of its rights and interests in the insurance policy and the claim relating to the loss of the automobile. The superior court granted Insurer’s motion to dismiss, concluding that Secured Lienholder had no legal interest in the matter as lienholder to a vehicle with a rescinded insurance policy and because it was not in privity of contract with Insurer and therefore lacked standing to sue. Secured Lienholder appealed.
The court of appeals vacated the dismissal and remanded the matter for further proceedings. The court explained that the superior court was required to consider the insurance contract itself to determine whether Secured Lienholder was an assignee under the terms of the contract. In particular, it held that—like a lienholder named in a standard loss-payable mortgage clause may collect on an insurance policy despite the insured’s fraud or misconduct in obtaining the policy—a loss payee properly named in a standard loss-payable clause is entitled to collect under an automobile insurance policy, notwithstanding the insured’s fraud or misconduct in obtaining the policy. The court also pointed to the Vehicle Insurance and Financial Responsibility Act, which clarifies that an automobile insurance carrier’s liability becomes absolute once an injury or damage to a covered vehicle occurs, such that a policy may not be nullified from its inception once an injury has occurred. In line with this rationale, the court held that the principle, that an automobile insurance carrier may not fully rescind a policy from its inception once an innocent third party is injured, extends beyond bodily injury to financial injury, such as the Secured Lienholder’s financial injury stemming from loss of the collateral on its secured interest in the lien.
Judge Eckerstrom authored the opinion, in which Judges Brearcliffe and Kelly joined.
Posted by: BriAnne Illich Meeds