Continuing my study of Hawaiian property insurance law while competing against Honolulu, an unusual case is worth discussing.1 It is not often that a claim is made on a boat that is stolen by the rightful owner. But Hawaii is an unusual place.
The Hawaii Supreme Court noted the issue:
It is axiomatic that, just as the owner of a building cannot ordinarily recover on his insurance for an injury due to fire which he himself deliberately started, so Conway cannot recover for his own departure from his own boat. The question in this case is therefore whether an appointed loss payment recipient can recover in just such a situation, where the owner could not. Does appellee have greater rights than Conway were Conway himself the named payee under the policy? This question can be resolved by determining whether what we are facing is an open loss payable or a union or default mortgage clause.
We have discussed this issue before Bad debt clauses and standard mortgagee clauses: Learn the basic rule and the difference. The Hawaii court similarly noted:
[T]The difference between the types of loss clauses is stated as follows:
There are several different types of common loss debt or mortgage clauses. The open loss payable clause simply states that “loss, if any, shall be paid to B. as his interest is to be shown,”; or uses other equivalent words, only to identify the person who may collect the proceeds. However, there is another type known alternately as the New York, standard, or union form which contains continues to say that “this insurance, as well as continues to say that “this insurance, as to the mortgagee’s interest only, shall not be voided by any act or default of the mortgagor or owner of the within described property. . .’ Under an open liability clause, the mortgagor is only a nominee and such a clause “does not specifically protect him (the payee) against the acts and omissions of the mortgagor, the effect being that the mortgagor’s remedy is liable to be exposed for every act and omission of the mortgagor which would void, terminate or affect the insurance of the latter’s interest under the insurance, and the mortgagor cannot recover if the mortgagor cannot.” 11 Couch, Insurance 2d, p 42:671, at 335-36 (1963). Standard or union mortgage clauses, on the other hand, “will state in some form of language that the insurance with respect to the mortgagor shall not be voided by the mortgagor’s acts or omissions.” …
It is clear from the above authorities that in order to create a standard or union mortgage clause it is necessary that the insurance policy, or an endorsement thereto, provides that the interest of the liable mortgagor is not subject to wrongful or illegal acts by the insured. which would void the coverage…
Based on this understanding between different loss liability clauses and simple loss payee clauses, the court made the following ruling for the insurance company:
In the instant case, the policy itself only stated who the former loss payee was and the subsequent endorsement attached showed that the appellee had been replaced as the loss payee. There was nothing that the loss payee’s interest would not be subject to the owner’s actions that would invalidate the coverage. Given the absence of such language in the policy, it is clear that an open indemnity clause was in effect at the time appellant suffered his loss. Accordingly, appellee steps into Conway’s shoes and its claim is defeated by the fact that Conway himself incurred the loss. This result is consistent with the terms of the policy itself. “It is expressly understood and agreed that if and when an insured under this policy has any interest other than as owner of the vessel mentioned herein, the company shall in no event be liable hereunder to any greater extent than if such insured were the owner and was entitled to all prescriptive rights to which a shipowner is entitled.”
Hopefully, at the time of this post’s publication, Merlin and her crew will be somewhere halfway between Los Angeles and Honolulu, with trade winds supporting us so that Merlin can quickly surf towards a quick finish. Otherwise, you will run out of space.
I’m a golfer, and what two sports can you do until you drop? Golf and surfing. They’re great for you limb-wise, they’re good for you health-wise, and they put you in sweet spots.
1 Fred v. Pacific Indemnity Co., 494 P.2d 783 (Haw. 1972).