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CLS Mortgage Inc. v. Bruno

April 17, 1997

CLS MORTGAGE, INC., A WASHINGTON CORPORATION; OPPORTUNITY MANAGEMENT COMPANY, INC., A WASHINGTON CORPORATION; AND BUD A. GATLIN AND MARLENE P. GATLIN, HUSBAND AND WIFE, APPELLANTS,
v.
LANA BRUNO, DEFENDANT, STATE FARM FIRE AND CASUALTY COMPANY, A FOREIGN CORPORATION, RESPONDENT.



Appeal from Superior Court of Spokane County. Docket No: 95-2-02614-6. Date filed: 02/20/96. Judge signing: Hon. Neal Q. Rielly.

The Publication Status of this Document has been Changed by the Court from Unpublished to Published May 29, 1997.

Authored by Philip J. Thompson. Concurring: John A. Schultheis, Stephen M. Brown.

The opinion of the court was delivered by: Thompson

THOMPSON, J. CLS Mortgage, Inc. (CLS), Opportunity Management Company, Inc. (OMC), and Bud and Marlene Gatlin (Gatlin) individuals, sued State Farm Fire and Casualty Company for breach of an insurance contract. Both parties moved for summary judgment. The court granted summary judgment in favor of State Farm. CLS, OMC, and Gatlin appeal contending summary judgment was improper because: (1) CLS retained an insurable interest in the property requiring coverage; (2) the assignment of the Deed of Trust from CLS to OMC and Gatlin did not alter the risk to State Farm thereby relieving them of coverage; and (3) notice of the assignment after the loss of the property was sufficient. We affirm.

In November 1991, Lana Bruno refinanced her home with CLS. Ms. Bruno executed a promissory note in the amount of $110,000 and a Deed of Trust in favor of CLS. In addition, Ms. Bruno obtained a homeowners' insurance policy with State Farm. The policy listed Ms. Bruno as the named insured and CLS as the mortgagee. The policy ran from November 7, 1991 to November 7, 1992.

On November 29, 1991, CLS assigned its interest in the Deed of Trust, for valuable consideration, to OMC and Gatlin, 50 percent to each. CLS was the management company for OMC and received consideration in a sum equal to two percent of OMC's assets for the assignment.

Ms. Bruno defaulted on her obligations under the note and Deed of Trust by failing to make timely payments as required. OMC and Gatlin, through their agent CLS, demanded Ms. Bruno pay the delinquent amount. When she did not cure the default, OMC and Gatlin, again through CLS, initiated foreclosure proceedings by issuing a Note of Default on June 4, 1992.

On September 25, 1992, State Farm, without knowledge of the foreclosure proceedings, issued a renewal certificate on the homeowners' policy extending the term until November 7, 1993.

On November 27, 1992, the trustee's sale was held. A Trustee's Deed was executed and delivered to OMC and Gatlin. At this point, OMC and Gatlin owned the property in fee simple. Ms. Bruno continued to occupy the property while she negotiated new financing with CLS. The house was destroyed by fire on May 17, 1993. *fn1

On December 17, 1993, CLS submitted a proof of loss to State Farm. On September 13, 1994, State Farm denied the claim stating CLS no longer had an insurable interest in the property due to the assignment of the Deed of

Trust.

On May 11, 1995, CLS, OMC and Gatlin started this action against Ms. Bruno and State Farm. *fn2 They claimed their loss was covered by the State Farm policy because CLS had an insurable interest in the property, the assignment did not affect the policy, and notice of the assignment after the loss was sufficient. State Farm and CLS moved for summary judgment. The court denied CLS's motion and granted State Farm's motion for summary judgment. CLS's motion for reconsideration was denied. CLS now appeals.

When reviewing a summary judgment motion, an appellate court engages in the same inquiry as the trial court. Mutual of Enumclaw Ins. Co. v. Jerome, 122 Wash. 2d 157, 160, 856 P.2d 1095 (1993). Summary judgment is proper when no questions of material fact exist, entitling a party to judgment as a matter of law. CR 56(c). A motion for summary judgment should be granted if after looking at all the evidence, reasonable persons could reach only one Conclusion. Nationwide Mut. Fire Ins. Co, v. Watson, 120 Wash. 2d 178, 186, 840 P.2d 851 (1992).

CLS claims it had an insurable interest in the property at the time of loss which would preclude summary judgment. An insurable interest in property generally arises when someone would profit or enjoy some advantage from the property, or would suffer a loss from the destruction of the property. Gossett v. Farmers Ins. Co., 82 Wash. App. 375, 382, 917 P.2d 1124 (citing 3 George J. Couch, Couch Cyclopedia of Insurance Law sec. 24:13 (Mark S. Rhodes, rev. ed., 2d ed. 1984)), review granted, 130 Wash. 2d 1016 (1996) An "insurable interest" is defined by statute as being "any lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage." RCW 48.18.040(2). Any ...


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