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All opinions are subject to modification and technical correction prior to official publication in the North Carolina Reports and North Carolina Court of Appeals Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the North Carolina Reports and North Carolina Court of Appeals Reports, the latest print version is to be considered authoritative.
CHRYSLER FINANCIAL COMPANY, LLC, Plaintiff v. SOUTH CAROLINA
INSURANCE COMPANY, JIMMY JOHNSON and MARY JOHNSON, Defendants
Filed: 17 June 2003
1. Insurance_automobile_finance company as loss payee_standard mortgage
clause_misrepresentations by purchaser
Alleged misrepresentations by the insured did not entitle defendant auto insurer to cancel
the policy as to the loss payee, and summary judgment was incorrectly granted for defendant,
where the loss payee (plaintiff) was the company which financed the purchase of an automobile
that was declared a total loss after a collision; the loss payee clause provided that it would
become invalid only for insured's conversion or secretion of the covered auto or damage to or
destruction of the covered auto with intent to commit fraud; the loss payee clause was thus a
standard mortgage clause which created a distinct and independent contract between the insurer
and the loss payee and conferred greater coverage to the loss payee than to the insured; and no
exceptions to the loss payee clause applied to the insured's alleged misrepresentations.
Furthermore, even though defendant insurer notified the insured that it was declaring the policy
void ab initio for misrepresentations, the record does not indicate that defendant gave notice to
plaintiff loss payee as the policy required, and plaintiff was not a party to the agreement which
contained the void ab initio language in the fine print.
2. Appeal and Error_appealability_denial of summary judgment_interlocutory order
The denial of summary judgment for plaintiff in an insurance dispute was an interlocutory
order and not immediately appealable where there was neither a certification nor a substantial
right affected. That portion of the appeal was dismissed.
Appeal by plaintiff from orders entered 17 September 2001 by
Judge Richard D. Boner in Mecklenburg County Superior Court and 14
June 2002 by Judge Gentry Caudill in Mecklenburg County Superior
Court. Heard in the Court of Appeals 15 May 2003.
Waggoner, Hamrick, Hasty, Monteith & Kratt, PLLC, by S. Dean
Hamrick, for plaintiff-appellant.
Baucom, Claytor, Benton, Morgan & Wood, P.A., by James F.
Wood, III, for defendant.
Chrysler Financial Corporation (plaintiff) appeals from an
interlocutory order denying summary judgment against South CarolinaInsurance Company (defendant) and from order granting summary
judgment for defendant. We reverse the order granting summary
judgment against plaintiff and dismiss the appeal from the
On 30 March 1998, Jimmy and Mary Johnson executed a retail
installment contract in favor of plaintiff secured by a 1998
Chrysler Sebring Coupe (vehicle) as collateral. On 29 September
1999, defendant issued an automobile insurance policy (policy) to
Jimmy Johnson covering the vehicle. The policy named plaintiff as
The loss payee portion of the policy read as follows.
Loss or damage under this policy shall be paid
as interest may appear to you and the loss
payee shown in the Declarations or in this
endorsement. This insurance covering the
interest of the loss payee shall become
invalid only because of your:
1. conversion or secretion of your covered
2. damage to or destruction of your covered
auto with the intent to commit fraud.
However, we reserve the right to cancel the
policy as permitted by policy terms and the
cancellation shall terminate this agreement as
to the loss payee's interest. We will give
the loss payee 10 days notice of cancellation.
When we pay the loss payee we shall, to the
extent of payment, be subrogated to the loss
payee's rights of recovery.
On 24 October 1999, the vehicle suffered damage during a
collision in Pennsylvania. Defendant received notice of thecollision and investigated the accident. The fair market value of
the car was estimated to be $18,225.00. It was declared a total
loss. After the initial investigation, defendant determined that
the Johnsons had made misrepresentations in their application for
insurance. By letter dated 4 January 2000, defendant denied
coverage for the loss of the vehicle.
Neither the Johnsons nor defendant advised plaintiff of the
damage to the vehicle. After the collision, the Johnsons failed to
make payments to plaintiff, and plaintiff learned of the damage to
the vehicle. On 9 October 2000, plaintiff sent a demand letter to
defendant for the payment due pursuant to the terms of the loss
payable clause of the policy. On 16 October 2000, defendant
replied to plaintiff's letter and contended that no coverage was
available to plaintiff as loss payee, due to the misrepresentations
made by the Johnsons in their application.
On 26 January 2001, plaintiff filed a complaint against
defendant to recover for damages to the vehicle and against the
Johnsons to recover the balance due on the retail installment
contract. Defendant and the Johnsons filed answers and cross
claims against each other. On 2 April 2001, plaintiff filed a
motion for summary judgment against defendant and the Johnsons. On
12 September 2001, the trial court granted summary judgment
against the Johnsons for $18,708.98 plus interest accrued from 11
December 2000. On 17 September 2001, the trial court denied
plaintiff's motion for summary judgment against defendant. On 14
June 2002, the trial court granted defendant's motion for summary
judgment dismissing the claims of the Johnsons and plaintiff.Plaintiff appeals.
The issues are (1) whether the Johnsons' misrepresentations to
defendant in their insurance application voided the protection
afforded plaintiff in the loss payee clause and (2) whether the
trial court erred in denying summary judgment in favor of the
plaintiff against defendant.
III. Effect of Johnsons' Misrepresentations
 The trial court granted defendant's motion for summary
judgment on the grounds: (1) that the Johnsons' misrepresentations
voided the policy ab initio, and (2) that plaintiff held no
interest as loss payee in a voided policy. The trial court relied
upon the case of Odum v. Nationwide Mutual Ins. Co., 101 N.C. App.
627, 401 S.E.2d 87, disc. review denied, 329 N.C. 499, 407 S.E.2d
539 (1991). Odum held that fraud was a defense to any amount of
coverage in excess of the statutory minimum required for motor
vehicle liability coverage. Id. at 635-36, 401 S.E.2d at 92.
Odum involved a liability coverage dispute. Here, the
interpretation of a loss payee clause and the impact of the
insured's fraud on the rights of the loss payee are at issue.
We hold that the more recent and factually similar case of
Nationwide Mutual Ins. Co. v. Dempsey, 128 N.C. App. 641, 495
S.E.2d 914, disc. review denied, 348 N.C. 283, 502 S.E.2d 847
(1998) controls. In Dempsey, Regional Acceptance Corporation held
a perfected security interest in the insured's vehicle and was
named as the loss payee in insured's insurance contract.
Dempsey, 128 N.C. App. at 642, 495 S.E.2d at 915. The loss payeeclause was virtually identical to that at bar. Id. This Court
found that clause to be a standard mortgage clause rather than an
open or simple loss-payable clause. Id. at 644, 495 S.E.2d at
The clause stated that the insurance covering
the interest of the loss payee shall become
invalid only because of your conversion or
secretion of your covered auto. This
language clearly extends to the loss payee
greater coverage than that extended to Dempsey
as it sets out only two instances when the
loss payee's insurance coverage will become
invalid. For this reason, we hold that the
clause is a standard mortgage clause.
Although the loss payee clause at bar extends an exception to
damage to or destruction of 'your covered auto' with the intent to
commit fraud, we find the rationale of Dempsey applicable. The
clause is a standard mortgage clause which exists as a distinct
and independent contract between the insurance company and the
mortgagee and 'confers greater coverage to the lienholder than the
insured has in the underlying policy.' Id. at 643, 495 S.E.2d at
915 (quoting Foremost Ins. Co. v. Allstate Ins. Co., 486 N.W.2d
600, 605 fn. 27 (Mich. 1992)). Plaintiff's rights are not
derivative of the Johnsons' interest.
The trial court did not interpret whether the Johnsons'
alleged misrepresentations constituted one of the exceptions
outlined in the loss payee clause. We hold that the Johnsons'
behavior does not constitute an exception to payment for the loss
Aside from the exceptions, the loss payee clause sets forth a
notice requirement for cancellation. Defendant was required togive the Johnsons and the loss payee ten days notice of the
impending cancellation for the collision insurance at issue. The
record does not indicate when or if defendant gave notice of its
cancellation to plaintiff. Defendant notified the Johnsons of the
cancellation by letter of 4 January 2000 in which it denied
coverage and cancelled the policy. The letter declared the
coverage cancelled from the inception date. To allow defendant
to cancel the policy from the inception defeats the purpose of the
notice provisions outlined in the policy.
Defendant relies upon fine print language in the application
for insurance signed by Mr. Johnson which states defendant can
declare the policy void ab initio if any of the answers on the
application are false or misleading. Plaintiff was not a party to
this agreement, and there is no indication, other than its
financing of the vehicle, that it consented to it. The well
established and universal rule is that insurance contracts will be
liberally construed in favor of the insured and strictly construed
against the insurer, since the insurance company selected the
language used in the policy. Mazza v. Medical Mut. Ins. Co., 311
N.C. 621, 631, 319 S.E.2d 217, 223 (1984). The insurance policy
was issued after the application and set out certain conditions for
cancellation that cannot be circumvented by the prior application
with respect to the loss payee. The summary judgment award in
favor of defendant is reversed.
IV. Plaintiff's Summary Judgment Motion
 Plaintiff attempts to appeal from the denial of its
summary judgment motion. The denial of a summary judgment motionis an interlocutory order. Pate v. State Farm Fire and Casualty
136 N.C. App. 836, 838, 526 S.E.2d 497, 498 (2000). Interlocutory
orders are not appealable to this Court absent certification by the
trial court or an issue affecting a substantial right. First Atl.
Mgmt. Corp. v. Dunlea Realty Co.,
131 N.C. App. 242, 246, 507
S.E.2d 56, 60 (1998). We find neither a substantial right affected
nor a certification at bar. This portion of the appeal is
dismissed as interlocutory.
Reversed and Remanded.
Judges McGEE and CALABRIA concur.
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