UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ROBERT H. O'CONNOR, SR.;
CATHLEEN B. O'CONNOR,
Plaintiffs-Appellants,

v.
                                                                        No. 97-1321
CUSTARD INSURANCE ADJUSTERS,
INCORPORATED; GULF INSURANCE
COMPANY,
Defendants-Appellees.

Appeal from the United States District Court
for the Eastern District of North Carolina, at Elizabeth City.
Terrence W. Boyle, Chief District Judge.
(CA-95-54)

Submitted: February 17, 1998

Decided: April 3, 1998

Before MURNAGHAN, ERVIN, and HAMILTON, Circuit Judges.

_________________________________________________________________

Affirmed by unpublished per curiam opinion.

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COUNSEL

John G. Trimpi, Elizabeth City, North Carolina, for Appellants. Tyrus
V. Dahl, Jr., WOMBLE, CARLYLE, SANDRIDGE & RICE,
Winston-Salem, North Carolina, for Appellees.

_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Appellants Robert and Cathleen O'Connor are the owners of the
Ocean Aire Motel in Rodanthe, North Carolina. They appeal the dis-
trict court's order granting the Defendants' motion for summary judg-
ment holding that the O'Connors did not have standing to sue to
recover on an insurance claim on the property. The parties submitted
a joint motion to submit this case on briefs, which we granted. Find-
ing no error, we affirm.

The East Carolina Bank of Englehard, North Carolina, held the
mortgage on the O'Connors' motel property. The bank had an estab-
lished policy to carry blanket mortgage insurance policies to protect
the Bank's interest in its mortgaged properties to the extent that its
mortgagors did not carry hazard insurance. The O'Connors' motel
was covered by the Bank's policy with Gulf Insurance Company
(Gulf) with a limit of $175,000. On August 31, 1993, Hurricane
Emily struck the Outer Banks of North Carolina. A few days later the
O'Connors reported property damage from the storm to Gulf.

Gulf employed defendants Custard Insurance Adjusters (CIA) to
investigate and adjust the claim. Both the O'Connors and Gulf com-
plain that there was much conflict in adjusting the claim. The
O'Connors claimed that the amount of loss exceeded the policy limits
and demanded settlement of the claim at the $175,000 policy limit.
Gulf determined an undisputed actual cash value loss of $90,294.11,
minus a $500 deductible, and in March 1994, issued a check for
$89,794.11, payable jointly to East Carolina Bank and Robert
O'Connor. The Bank applied the payment to the principal on the
mortgage. After payment on the undisputed loss, Gulf continued to
investigate the claim. The O'Connors became increasingly agitated at
the handling of the claim by Gulf and CIA and issued a demand letter
threatening suit. Gulf chose to decline the demand. After several

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exchanges between the parties' attorneys, the O'Connors filed suit in
August 1995 for the remaining amount of alleged loss.

The O'Connors sought the balance of the alleged loss of approxi-
mately $85,000 under a breach of contract theory. The O'Connors
also sought relief for unfair settlement and trade practices arising out
of conduct and representations made by or attributable to Gulf and
CIA. Gulf and CIA raised several affirmative defenses to the action,
including an assertion that the O'Connors were not additional insurers
under the Gulf policy with the Bank and therefore had no standing to
prosecute this claim against Gulf and CIA. The district court granted
Gulf's and CIA's motions for summary judgment and dismissed the
action. The O'Connors timely noted an appeal. We review the district
court's grant of summary judgment de novo. See Miller v. FDIC, 906
F.2d 972, 974 (4th Cir. 1990).

Under the insurance agreement, "[t]he mortgagor of property cov-
ered by this policy shall be considered an additional insured as
respects any residual amounts of insurance over and above the finan-
cial institution's interest in said property." So, to the extent that the
amount owed to the Bank on the date of loss was less than $175,000,
the mortgagor would be an additional insured for any residual amount
up to the policy limit of $175,000.

On the date of loss, the O'Connors owed East Carolina Bank
$186,032.17, approximately $11,000 over the policy limit. Therefore,
at the time the property sustained damage from the storm, the
O'Connors were not additional insurers. During the course of the
troubled claim adjustment proceedings, Gulf elected to negotiate the
claim only with the Bank. After Gulf made this election, the
O'Connors paid the loan indebtedness in full by September 1994. The
O'Connors argue that they have standing to proceed against Gulf and
CIA. They contend that when they paid the balance of the mortgage,
they became additional insurers under the policy. They claim to be
successors in interest to the Bank for the full $175,000 policy limit,
minus the amount already paid on the claim.

While there is no published law on point from the State of North
Carolina, the fundamental premise of insurance law is that the rights
to insurance proceeds as between mortgagor and mortgagee are fixed

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as of the date of loss. The fact that a mortgage was later satisfied,
after the date of loss, does not affect the right to recovery. That right
remains fixed. See Norfolk & Dedham Mut. Fire Ins. Co. v.
Schlehuber, 327 So. 2d 891, 892 (Fla. App. 1976) (citing Whitestone
Sav. & Loan Ass'n v. Allstate Ins. Co. 270 N.E.2d 694 (N.Y. 1971)).
See also Giberson v. First Fed. Sav. & Loan Ass'n , 329 N.W.2d 9,
11 (Iowa 1983) (holding that the interests of the mortgagor and mort-
gagee under an insurance policy are determined as of the date of loss);
Law v. Dewoskin, 447 S.W.2d 361, 363 (Tenn. 1969) (same). The
O'Connors do not cite any cases to dispute this well settled proposi-
tion.

The O'Connors point to language in Whitestone suggesting that a
mortgagee can "impair" its rights after the date of loss through
waiver, estoppel, assignment, or discharge of debt. However, the
Bank did not impair its rights in any of the ways suggested by the
O'Connors. First, the O'Connors cite Jones v. Wesbanco Bank
Parkersburg, 460 S.E.2d 627 (W. Va. 1995), to support their argu-
ment that their post-loss satisfaction of the mortgage grants them a
right to recover on the policy. In Jones, the court held that the right
to insurance proceeds is determined at the time of the loss. The plain-
tiffs in Jones, unlike the O'Connors, were insured before the date of
loss. The issue in Jones was whether, under a standard mortgage
clause, the mortgagee had the equivalent of an independent contract
with the insurance company so that it would not be bound by an arson
exclusion which precluded a claim by the mortgagor. The court's
holding that a mortgagee's right to proceeds after the debt was satis-
fied is inapplicable because the terms of the policy and the circum-
stances surrounding the claim are completely distinguishable. See
Jones, 460 S.E.2d at 634-35.

The O'Connors next argue that there was an implied assignment of
any and all rights to proceed against the insurance carrier. As support,
the O'Connors cite Barbee v. Edwards, 77 S.E.2d 646 (N.C. 1953).
Barbee holds that once a mortgage is satisfied, all outstanding inter-
ests in the land revert immediately to the mortgagor by operation of
law. See Barbee, 77 S.E.2d at 649. This principle does not support an
argument for implied assignment. Further, Barbee is a quiet title
action and does not discuss insurance policies or rights to proceeds
from a policy.

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Finally, the O'Connors contend that Gulf is estopped from assert-
ing that the O'Connors were not insured. The O'Connors state that
because Gulf and CIA dealt with them extensively for approximately
one year before electing to negotiate only with the Bank, Gulf and
CIA treated them as insured under the policy. This argument does not
demonstrate that Gulf intended to treat the O'Connors as insured. It
was necessary for Gulf and CIA to interact with the O'Connors in
order to assess the amount of loss. Because the O'Connors were own-
ers of the motel and had information known exclusively to them
regarding the loss, Gulf and CIA had no alternative but to discuss
with them the amount of loss.

We therefore affirm the district court order.

AFFIRMED

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