Seller Of Restaurant Not Entitled To Policy Proceeds

Commercial Property	Fire Insurance
Mortgage Holders and Loss Payees	No Negligence

A security agreement was entered into by the seller of a restaurant and its buyer to secure the payment of the unpaid balance of the purchase price. The agreement required the buyer to maintain fire insurance on the property, with the seller to be named as a "loss beneficiary" and provided with a copy of the policy.

Only the buyer was named in the policy that it obtained, and the covered property was totally destroyed by fire ten months after its issue. The seller notified the insurer, by certified mail, of its claim to the policy proceeds. However, the carrier sent a settlement check to the buyer, which they deposited a month later. The check did not include the seller as a payee because it had not been included as a loss payee in the policy.

During legal action to recover the policy proceeds, the seller moved for summary judgment, arguing the insurer had acted negligently; the insurer cross-moved for summary judgment.

An appeal followed the denial of the seller's motion and was granted, resulting in the insurer's motion for summary judgment being dismissed, thereby dismissing the complaint against it. The seller argued that it "had an equitable lien on the proceeds of the fire insurance policy, and thus, the carrier was negligent in failing to name the plaintiff as a payee on the proceeds check."

The appeal court stated that, since the seller was not a party to the insurance contract, the insurance company had no obligation to investigate its claim to the policy proceeds. It quoted from its holding in another case: "....a secured creditor is in the best position to police the enforcement of its agreement with its debtor with respect to insurance coverage on collateral."

With a dissenting opinion, the appeals court affirmed the trial court's decision to grant the insurer's motion for dismissal of the complaint against it.

Rosario-Paolo, INC., Appellant v. C & M Pizza Restaurant, Inc., Defendant; Investors Ins. Co. Of America, Inc., Respondent. New York Supreme Court, Appellate Division, Second Judicial Department. No. 91-06081. June 28, 1993. CCH 1993-94 Fire and Casualty Cases, Paragraph 4442.