5 Fla. L. Weekly Supp. 63a
Insurance — Loss payable clause — Where insured purchased automobile from plaintiff and obtained comprehensive coverage on vehicle naming plaintiff as loss payee; hybrid type of loss payee clause in policy provided that insurer waived its defenses as to loss payee unless loss resulted from principal insured’s conversion, secretion or embezzlement of collateral; and insurer did not allege any such defenses, hybrid clause will be given same effect as standard clause — Loss payee under standard clause is entitled to be paid, even if policy is void ab initio as to first party insured because of misrepresentations made by first party insured in procuring policy — Section 627.409 cannot be construed to mean that misrepresentations in application void entire contract in loss payee situations, because it would render standard clauses worthless in the industry — Error to grant summary judgment in favor of insurer on plaintiff/loss payee’s claim which arose when vehicle was destroyed by fire of accidental origin
PALM CITY CORPORATION d/b/a MR. CHIPS AUTO SALES, Appellant, v. NEW HAMPSHIRE INDEMNITY CO., Appellee. 20th Judicial Circuit in and for Lee County. Case No. 96-4524 AP. Lower Case No. 95-1196 CC. Opinion issued August 19, 1997. Appeal from the County Court for Lee County; John W. Dommerich, Judge. Counsel: Robert C. Hill, Jr., Fort Myers, for Appellant. Gerald W. Pierce, Fort Myers, for Appellee.
(PER CURIAM.) Marquette Williams purchased and financed a car from the Appellant, Palm City Corporation (“Palm City”). Williams was to provide comprehensive coverage on the auto naming Palm City as loss payee under that coverage. The loss payee provision provides as follows:
This insurance with respect to the interests of the loss payee, shall not become invalid because of your fraudulent acts or omissions unless the loss results from your conversion, secretion or embezzlement….
The insured vehicle was destroyed by a fire of accidental origin and the Appellee, New Hampshire Indemnity Co., (“Insurer”) failed to pay the claim of the Appellant as loss payee under the policy. The Insurer defended the suit on the grounds that the policy was void ab initio because Williams allegedly made material misrepresentations in his application for coverage. Specifically, the Insurer contended that Williams had answered falsely on the policy application when he stated that he had never been arrested for anything other than a traffic offense. In fact, he had been previously arrested for grand theft auto in Minnesota. The Insurer also alleged that they would not have issued the policy had they known of the arrest.
The insurer filed a motion for summary judgment which was granted by the trial court. This timely appeal by Palm City ensued.
The issue for our determination is whether the language of the loss payee clause of Insurer’s policy allows the Insurer to avoid liability to a loss payee based on the misrepresentation of the first party insured, Marquette Williams.
The law generally recognizes two different types of loss payee clauses in casualty insurance contracts. The first is known as the simple loss-payable or open-mortgage clause. The second is known as the standard, union, or New York mortgage clause. For the sake of clarity, the Court will refer to the first type of loss payee clause as a “simple clause,” and the latter as a “standard clause.”
A simple clause in a policy merely provides that the loss shall be payable to the mortgagee as his interest may appear. Under a simple clause, the mortgagee has no better right of recovery than that of the mortgagor and a breach of the policy which would prevent recovery by the owner/mortgagor precludes recovery by the mortgagee from the insurer. Progressive American Insurance Company v. Florida Bank at Daytona Beach, 452 So. 2d 42 (Fla. 5th DCA 1984); DeMay v. Dependable Insurance Company, 638 So. 2d 96 (Fla. 2d DCA 1994).
The standard clause stipulates that the insurance, as to the interest of the mortgagee only, will not be invalidated by the act or neglect of the owner or mortgagor of the property. Under a standard clause, a separate contractual relationship exists between the mortgagee and the insurer independent of the principal contract and the mortgagee’s interest is not subject to forfeiture by reason of any act or omission of the first party insured. Glenn Falls Insurance Company v. Porter, 44 Fla. 568, 33 So. 473 (1902); National Casualty Company v. General Motors Acceptance Corporation, 161 So. 2d 848 (Fla. 1st DCA 1964).
Notwithstanding the foregoing, it appears that yet a third type of loss payee clause has been recognized in Florida. See, Progressive v. Florida Bank, supra. It is known as a “hybrid clause,” and is identified by a policy provision which provides that only certain acts of owner/mortgagor will invalidate the policy as to the mortgagee. A hybrid clause will be given the same effect as the standard clause except as to the specific acts of the insured which the hybrid specifically provides will invalidate coverage as to the mortgagee. Id. at 44-45. We find that the clause at issue is a hybrid clause.
The loss payee clause in the policy at issue provided that the insurer waived its defenses as to the loss payee unless the loss resulted from the principal insured’s conversion, secretion or embezzlement of the collateral. The Insurer has never alleged any such defenses and has relied on the defense of a material misrepresentation on the policy application by Williams.
It is the Insurer’s position that the contract at issue is void ab initio because Marquette lied in the application and thus if the policy never existed, the loss payee cannot have any rights. The Insurer relies on Florida Statute § 627.409 and the cases construing that statute to support its position. The court finds that § 627.409 cannot be construed to mean that misrepresentations in contracts void the entire contract in loss-payee situations. Such a construction would basically render standard clauses worthless in the industry, since the mortgagee could never be adequately assured that their interests were protected. Statutes will not be interpreted so as to yield an absurd result. Williams v. State, 492 So. 2d 1051, 1054 (Fla. 1986).
We find that the case of National Casualty Co. v. General Motors Acceptance Corp., supra, supports the view that a loss payee under a standard clause is entitled to be paid even if the policy is void ab initio as to the first party insured. In National Casualty Co., the First District relied upon Syndicate Insurance Co. v. Bohn which held that the standard clause protected the lienholder where the first party insured had made a false statement in procuring the policy and found coverage as to the loss payee, even though there was never valid insurance as to the mortgagor. The Court reasoned that the acts or omissions of the insured cannot protect the insurer from the claim of the loss payee under a standard clause because the rights of the loss payee “are not derivative from the rights of the named insured.” National Casualty Co. at 852.
Accordingly, we REVERSE the judgment and REMAND the case to the trial court for proceedings consistent with this opinion. (PACK, HAYES and ROSMAN, JJ., concur.)
* * *
