                   IN THE COURT OF APPEALS OF TENNESSEE
                                AT JACKSON

                                    November 16, 2004 Session

    CERTAIN UNDERWRITERS AT LLOYDS, LONDON v. TED M.
  WINESTONE; J.B. MCDONALD & CO.; LEONARD E. FRANKLIN; and
        GUARANTY NATIONAL INSURANCE COMPANY.

  TED M. WINESTONE and J.B. MCDONALD & CO., V. REGIONS
MORTGAGE, INC., GEORGE HOLLEY INSURANCE AGENCY, INC. and
                   AL HOLLINGSWORTH


                      An Appeal from the Circuit Court for Shelby County
                          CT-006472-00    Karen R. Williams, Judge


                       No. W2003-03025-COA-R3-CV - Filed July 13, 2005


This is a casualty insurance case. A bank had a mortgage on residential property. The homeowner
stopped making payments on the mortgage, abandoned the property, and allowed the homeowner’s
insurance coverage on the property to lapse. The bank, in order to protect its interest in the property,
purchased insurance coverage on behalf of the homeowner. The bank later sold the mortgage to a
third party and cancelled the insurance coverage. The new mortgagee purchased insurance coverage
for the property. Shortly thereafter, the property burned, resulting in a total loss. The new
mortgagee’s insurance company filed the instant lawsuit, asking for a declaratory judgment that the
prior insurance policy was still effect at the time of the fire. The trial court held that the prior policy
was not in effect at the time of the fire. The new insurance company appealed, arguing that, in the
course of the purchase, the prior insurance coverage had transferred to the new mortgagee as assignee
of the prior mortgage holder, and that the bank’s cancellation of the prior insurance policy was
ineffective. We affirm, finding that the prior insurance coverage was not transferred to the new
mortgage holder and that the prior insurance policy was not in effect at the time of the fire.

    Tenn. R. App. P. 3 Appeal as of Right; the Judgment of the Circuit Court is Affirmed

HOLLY M. KIRBY , J., delivered the opinion of the Court, in which W. FRANK CRAWFORD , P.J., W.S.,
and ALAN E. HIGHERS, J., joined.
Allan B. Thorp, Memphis, for plaintiff/appellant, Certain Underwriters at Lloyds, London.

Eugene G. Douglass, Bartlett, and Alvin A. Gordon, Memphis, for defendant/counter-plaintiff and
third party plaintiff/appellee Ted M. Winestone and J.B. McDonald & Co.

Michael B. Neal, Memphis, for appellee Guaranty National Insurance Company.

                                                 OPINION

         In July 1993, Leonard Franklin (“Franklin”) purchased a house and lot located in Memphis,
Tennessee. In the course of the purchase, Franklin executed a deed of trust and a promissory note in
the amount of $400,000 to Regions Mortgage, Inc. (“Regions Mortgage”), located in Birmingham,
Alabama. The deed of trust required Franklin to maintain casualty insurance to protect against fire
loss to the property. Franklin purchased a policy with State Auto Insurance Company.

        During the summer of 1999, Franklin became delinquent on his mortgage payments. In
December 1999, Regions Mortgage inspected the property and learned that it was vacant and not
listed for sale. After contacting State Auto Insurance Company, Regions Mortgage learned that
Franklin’s policy had been cancelled on September 22, 1999.

        At that time, Regions Mortgage had a master policy issued by Guaranty National Insurance
Corporation (“Guaranty National”) that provided “forced place” insurance to Regions Mortgage on
behalf of Region Mortgage’s customers who could not or did not properly insure property for which
Regions Mortgage was mortgagee.1 Cason Financial, Inc. (“Cason”) was the insurance agent for the
Guaranty National policy, and it was administered by Overby-Seawell Company (“Overby-Seawell”).
On February 8, 2000, Guaranty National issued a certificate of coverage regarding the Franklin
property. On the “Declarations” page, Franklin was listed as the insured mortgagor and Regions
Mortgage, Inc., Its Successors and/or Assigns was listed as the insured mortgagee. The coverage was
issued for one year and was made retroactively effective from September 22, 1999, the date that
Franklin’s coverage through State Auto Insurance Company lapsed. Regions Mortgage paid a full
year premium on this policy of $3,696.95. Under the terms of the policy, Regions Mortgage had the
right to cancel coverage retroactively. The policy stated:

                The first Named Insured shown in the Declarations may cancel this
                policy by mailing or delivering to us advance written notice of
                cancellation. You may also cancel coverage on any Mortgagor’s
                Certificate of Insurance which has been issued by notifying us of the
                desired effective date of cancellation, but not prior to the effective date
                of mortgagor provided insurance which meets the requirements of your


        1
          “Forced place” insurance is a policy purchased by a mortgagee (i.e. Regions Mortgage) on behalf of a
mortgagor (i.e. Franklin) when the mortgagor’s policy lapses for whatever reason. This term is sometimes shown as
“force placed” or “forced-place.” W e used the term “forced place” because it appeared to be the most prevalent.

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               loan agreement, and no more than 60 days prior to the date of
               notification to us, without approval of the company. (emphasis added)

Additionally, the Declarations page stated “this coverage is not transferable without written
permission by endorsement hereon by [Guaranty National].”

         By January 2000, Regions Mortgage determined that Franklin would not cure the default
status of his mortgage. Regions Mortgage referred the matter to Stanley Weir (“Weir”) of Regions
Financial Corp. (“Regions Financial”) to determine the appropriate action, which could include
foreclosure. Regions Financial determined that Regions Mortgage should simply sell the mortgage
and the deed securing it. As a result, Regions Mortgage began negotiating to sell the mortgage to J.B.
McDonald & Co. (“McDonald”), a corporation fully owned by Ted Winestone (“Winestone”). The
deed of trust was to be assigned to McDonald, who would in turn assign the mortgage and deed of
trust to Winestone.

       On March 21, 2000, in anticipation of purchasing the mortgage on the Franklin property,
Winestone wrote checks to George Holley Insurance Company (“Holley Insurance”) for the purpose
of obtaining a casualty insurance policy on the Franklin property. Winestone alleged that he
requested a mortgagee’s policy from Holley Insurance. Holley Insurance purchased insurance on
Winestone’s behalf from Certain Underwriters at Lloyd’s, London (“Lloyd’s”). The Lloyd’s policy
had an “other insurance provision” that allowed Lloyd’s to offset any losses against certain other
insurance coverage. The provision read:

       If there is other insurance covering the same loss or damage, other than described in
       No. 1 above, we will pay only for the amount of covered loss or damage in excess of
       the amount due from that other insurance, whether you can collect on it or not. But
       we will not pay more than the applicable limit of coverage.

The new Lloyd’s insurance policy was to become effective on March 21, 2000.

        The closing on the sale of the mortgage from Regions Mortgage to McDonald (owned by
Winestone) was scheduled for March 17, 2000. Immediately prior to the closing, Weir, with Regions
Financial, sent Winestone a letter dated March 17, 2000, that stated: “As we discussed, once we have
received recordation confirmation of the Assignment, we will cancel the forced place insurance
coverage on the property. As I am sure you are aware, the insurance only covers Regions [Mortgage]
for any loss that may occur.”

       The closing on the transfer of the mortgage from Regions Mortgage to McDonald and
Winestone took place on March 17, 2000. At that time, the balance owed to Regions Mortgage was
approximately $390,000. Winestone paid Regions Mortgage $345,000 in exchange for the mortgage
and the deed of trust.




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        After the closing, on March 20, 2000, Regions Mortgage directed its accounting department
to write off the balance owed on the Franklin property. Consequently, the Franklin account was noted
on the books of Regions Mortgage as “paid-off.”

        Thereafter, in March 2000, Regions Mortgage, by electronic transmission, contacted the
administrator of the Guaranty National policy, Overby-Seawell, requesting cancellation of the policy
covering the Franklin property. The transmission included the notation, “WAIVE-paid-off.” It was
entered on Overby-Seawell’s system on 3/28/00, to be retroactively effective on 3/22/00. Overby-
Seawell viewed this electronic transmission, with the “WAIVE-paid-off” notation, as notice to cancel
the insurance coverage on the Franklin property. However, for reasons not clear in the record, the
Guaranty National policy was not actually cancelled at that time. In the meantime, in late March 2000,
Winestone began foreclosure proceedings on the Franklin property.

       On April 1, 2000, the Franklin property was totally destroyed by fire. Several days later,
Winestone received a copy of the insurance policy from Lloyd’s and discovered that the policy that
had been issued was an owner’s policy rather than a mortgagee’s policy. On April 6, 2000,
Winestone gave notice to Lloyd’s that the Franklin property had burned. On April 18, 2000,
Winestone foreclosed on the property; Winestone and his wife purchased the property at the
foreclosure sale.

        On May 15, 2000, Overby-Seawall, administrator for the Guaranty National policy, received
an additional notification of cancellation on the Franklin policy from Regions Mortgage. This
notification from Regions Mortgage, a cancellation log sheet, requested a retroactive cancellation
date for the Guaranty National policy of 3/22/2000. The coverage under the Guaranty National
insurance policy was then finally cancelled on the Overby-Seawall system on May 15, 2000, and the
cancellation was made retroactively effective as of March 22, 2000. Based on a cancellation date of
March 22, 2000, Overby-Seawall calculated the amount of unused premium to be $1,854.65. This
amount was refunded to Regions Mortgage, which applied it to Franklin’s outstanding balance. Thus,
Regions Mortgage’s forced place insurance coverage with Guaranty National terminated with an
effective date shortly after Regions Mortgage sold its interest in the property. Franklin was not
notified of the cancellation of the Guaranty National policy.

         On November 3, 2000, Lloyd’s filed a Complaint for Declaratory Judgment (“Complaint”)
naming Winestone, McDonald, Franklin, and Guaranty National as defendants. The lawsuit asked
the trial court to determine Lloyd’s duties and responsibilities under the policy. In the complaint,
Lloyd’s asserted that the casualty insurance policy issued by Guaranty National was in full force and
effect at the time the Franklin property burned, making the “other insurance” provision of the Lloyd’s
policy applicable.

         In December 2000, in its answer to the complaint, Guaranty National asserted that its policy
did not cover the loss of the Franklin property because Regions Mortgage cancelled the policy on
March 22, 2000, before the loss on the Franklin property occurred. Guaranty National also asserted
that it was not liable under the policy because, at the time of the loss, its insured, Regions Mortgage,

                                                  -4-
no longer had an insurable interest in that property. Later, after the parties engaged in discovery,
Guaranty National filed a motion for summary judgment, asserting that the dispute in this case was
between Lloyd’s and Winestone regarding the loss of the Franklin property and that Guaranty
National was not involved. Guaranty National maintained that no party had made a claim against it
and no party had a right to make a claim against it. As a result, Guaranty National sought to be
dismissed from the action.

        In response to Lloyd’s lawsuit, Winestone and McDonald filed a third-party complaint against
Regions Mortgage, alleging, inter alia, that if Regions Mortgage failed to cancel its forced place
insurance coverage, thereby enabling Lloyd’s to invoke the “other insurance” clause in the Lloyd’s
policy, then Regions Mortgage was liable to Winestone for negligence. The third-party complaint
also included a claim against Holley Insurance, asserting that if the Lloyd’s policy was held invalid
because it was an owner’s policy rather than an mortgagee’s policy as requested by Winestone, then
Holley Insurance was liable for negligence for not procuring the proper type of insurance. The
response by Winestone and McDonald included a counterclaim as well, asking the trial court to find
that the Lloyd’s policy provided coverage for the loss incurred at the Franklin property.2

        On January 17, 2003, Lloyd’s filed a motion for partial summary judgment against Guaranty
National, asserting that Guaranty National’s policy was never effectively cancelled. Lloyd’s asked
the court to declare that Guaranty National’s casualty insurance policy was in full force and effect on
April 1, 2000, the date of the fire loss on the Franklin property. On July 8, 2003, Lloyd’s moved to
amend its complaint, seeking to clarify that it had a claim against Guaranty National. Lloyd’s asserted
that it was entitled to contribution or indemnification from Guaranty National as a result of the
Guaranty National policy. Lloyd’s also sought partial summary judgment based on Winestone’s
purchase of the property at foreclosure, asserting that, by personally purchasing the Franklin property
at foreclosure, Winestone partially extinguished the outstanding debt remaining on the promissory
note, thus reducing any amount owed by Lloyd’s to Winestone as mortgagee.

         In September 2003, Guaranty National filed a motion to dismiss and for summary judgment,
asserting that Lloyd’s was time-barred. In the motion, Guaranty National stated that any claim against
it arising from the fire loss on the Franklin property should have been filed within two years of the
loss, as required by its policy. As a result, Guaranty National asserted that the Lloyd’s claim was
barred by the time limit in its policy. In addition, Guaranty National reiterated its argument that
Regions Mortgage had no insurable interest in the property at the time of the loss and thus Guaranty
National was not responsible for the loss. Guaranty National also argued that Lloyd’s “other
insurance” provision was not applicable. Guaranty National noted that, if an insurer seeks to offset
its losses through an “other insurance” provision, the other insurance must cover the “same loss” or
“same damage.” In this case, Guaranty National maintained, the “same loss” would refer to a loss
suffered by Winestone and insured by Lloyd’s. Guaranty National then argued that claims for
indemnification through the “other insurance” clause should be limited to policies owned by

        2
            The appellate record does not include a response from Franklin.


                                                  -5-
Winestone. Guaranty National noted that Winestone was not an insured under the Guaranty National
policy and thus the Guaranty National policy was not “other insurance” under the provisions of the
Lloyd’s policy.

       The trial court allowed Lloyd’s to amend its complaint to assert a claim against Guaranty
National. It went on, however, to grant Guaranty National’s motion for summary judgment and
motion to dismiss. The trial court found:

       1.) that as of April 1, 2000 Regions Mortgage had no insurable interest in the Leonard
       Franklin property, 2.) that the insurance afforded with respect to the property of
       Leonard Franklin by Guaranty National was not in effect as of April 1, 2000, 3.) that
       Guaranty National provided no insurance with respect to the loss allegedly suffered
       by Ted Winestone on April 1, 2000 and 4.) that the interests insured by the [Lloyd’s]
       policy were different from the interest insured by the Guaranty National policy and
       therefore the Guaranty National policy would afford no insurance coverage to Ted
       Winestone and 5.) the Guaranty National policy is not “other insurance” within the
       meaning of the “other insurance” clause of the [Lloyd’s] policy.

Based on these findings, the trial court denied Lloyd’s request for a declaration that the Guaranty
National policy was in effect as of the date of the fire loss, and granted Guaranty National’s motion
for summary judgment and to dismiss. Pursuant to Rule 54.02 of the Tennessee Rules of Civil
Procedure, the judgment entered in favor of Guaranty National and Franklin was made final. The
trial court noted that the action remained pending as to all other claims. From this order, Lloyd’s now
appeals.

        On appeal, Lloyd’s argues that the trial court erred in granting summary judgment to Guaranty
National because Winestone had been assigned the Guaranty National policy and because the policy
had never been effectively cancelled. Lloyd’s also asserts that the amended complaint was not barred
by the two year limitation period noted in the Guaranty National policy because the second complaint
did not allege new facts; rather, it alleged a more specific prayer for relief.

        A motion for summary judgment should be granted only when the movant demonstrates that
there are no genuine issues of material fact and that the moving party is entitled to judgment as a
matter of law. Tenn. R. Civ. P. 56.04. Summary judgment is appropriate only when the facts and the
legal conclusions drawn from the facts reasonably permit only one conclusion. Carvell v. Bottoms,
900 S.W.2d 23, 26 (Tenn. 1995). Since only questions of law are involved, there is no presumption
of correctness regarding a trial court’s grant of summary judgment. Bain v. Wells, 936 S.W.2d 618,
622 (Tenn. 1997). Therefore, our review of the trial court’s grant of summary judgment is de novo
on the record before this Court. Warren v. Estate of Kirk, 954 S.W.2d 722, 723 (Tenn. 1997).

        On appeal, Lloyd’s first argues that Winestone was an assignee of Regions Mortgage and was
therefore covered by the Guaranty National policy. Lloyd’s notes that the Declarations page in the
Guaranty National policy named the mortgage holder (Regions Mortgage) and its assigns as the

                                                 -6-
insured. Lloyd’s then asserts that Winestone is such an assignee under the terms of the Guaranty
National policy. However, the Declarations page of the Guaranty National Policy clearly states that
coverage is not transferrable without written permission. An insurance company may refuse to honor
an assignment made without its permission. Hobbs v. Memphis Ins. Co., 33 Tenn. 444 (1853);
Quarles v. Clayton, 10 S.W. 505, 507 (Tenn. 1889); Mutual Protection Fire Ins. Co. v. Hamilton
& Gorham, 37 Tenn. 269 (1857). The record contains no indication that Guaranty National agreed
to the assignment of its policy to either McDonald or Winestone. This argument must be rejected.

        Lloyd’s also argues that Guaranty could not retroactively cancel its coverage through an
internal computer entry and without written notice. Lloyd then cites a portion of the Guaranty
policy that states:

       Cancellation:

       b. We may cancel this policy or any Mortgagor’s Certificate of Insurance by
       mailing or delivering to the first Named Insured written notice of cancellation at
       least:
       (1) 10 days before the effective date of cancellation if we cancel for nonpayment of
       premium; or
       (2) 30 days before the effective date of cancellation if we cancel for any other reason
       c. Other Termination Provision
       (1) We will also mail or deliver to any mortgage holder, pledgee or other person
       shown in this policy to have an interest in any loss which may occur under this policy
       or any Mortgagor’s Certificate of Insurance, at their last mailing address known to
       us, written notice of cancellation, prior to the effective date of cancellation. Our
       notice will be the same as that mailed or delivered to the first Named Insured.
       (emphasis in original.)

Lloyd’s then cites Jefferson Ins. Co. v. Curle, 771 S.W.2d 424, 425-26 (Tenn. Ct. App. 1989) for
the proposition that, for cancellation of an insurance policy to be effective, Tennessee courts require
an insurer to strictly comply with its own cancellation policy. Based on this theory, Lloyd’s asserts
that Guaranty National’s failure to follow the notice provisions in the cancellation policy shown
above resulted in the Guaranty National policy remaining in effect. The principle noted in Jefferson,
however, is inapplicable. Certainly, when cancellation of insurance coverage is instigated by the
insurer, strict compliance with the notice requirements is necessary to allow the insured to obtain
other coverage. Id. at 426. However, in the instant case, as in Jefferson, cancellation of the policy
was sought by the insured, Regions Mortgage; notice to Regions Mortgage would not be necessary
for effective cancellation. Lloyd’s, of course, was not a named insured, nor was it an assignee under
the policy, as noted above. As such, it was not entitled to any notice pursuant to the policy provisions
cited above.

       Moreover, the policy language cited above clearly permits Regions Mortgage to cancel the
policy retroactively, so long as the notification to Guaranty National was within 60 days of the

                                                  -7-
requested cancellation date. Whether Regions Mortgage’s cancellation was made on 3/28/2000, by
electronic transmission, or by the written cancellation on 5/15/2000, the cancellation was still within
the 60-day time limit to retroactively cancel the policy effective 3/22/2000. Under all of these
circumstances, we find no error in the trial court’s conclusion that the Guaranty National policy on
the Franklin property was not in effect on the date of the fire loss, 4/1/2000.

        Lloyd’s final argument on appeal is that the trial court erred in granting Guaranty National’s
motion to dismiss the amended complaint, which more clearly asserted their request for contribution
or indemnification. However, our holding above that Winestone and/or McDonald were not valid
assignees of the policy and that the policy was effectively cancelled before the fire loss occurred,
pretermits Lloyd’s final argument, since a specific request for contribution and indemnification would
not affect the outcome of this appeal.

       The decision of the trial court is affirmed. Costs of this appeal are taxed to the appellant,
Certain Underwriters at Lloyd’s, London, and its surety, for which execution may issue, if necessary.




                                                       __________________________________
                                                       HOLLY M. KIRBY, JUDGE




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