Court rejects investor’s suit against insurer of debtor: Second mortgagee’s complaint for breach of contract against insurer fails based upon documentary evidence

Edge Capital IV, LLC v. USAA Casualty Insurance Company, Supreme Court, Nassau County, April 6, 2011

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In a Short Form Order, dated April 6, 2011, the Honorable Thomas Adams, AJSC, dismissed a breach of contract Complaint against the defendant insurer based upon undisputed documentary evidence. AGF&J member Michael E. Gorelick and associate Thomas R. Maeglin represented the property insurer defendant, which was alleged to have paid proceeds of a fire loss to the insured and first mortgagee without naming or notifying the plaintiff who held a second mortgage.

The Court agreed that there could be no liability, because the amount due on the first mortgage on the insured property far exceeded the amount of the loss and, in fact, the limits of the policy. The Court found that the amount due on the first mortgage (determined from the filings in the insured mortgagor’s Bankruptcy proceedings) was undisputed.

Plaintiff had contended that, because it was not named as a payee on USAA’s check, it had not been involved in determining how to apply the insurance proceeds, and therefore had been deprived of the opportunity to negotiate a share of the proceeds. The Court expressly rejected this argument, ruling that, under the terms of the policy, the first mortgagee had priority over the second mortgagee to the loss proceeds. Thus, the defendant insurer had no additional duty beyond those which it had satisfied.

The Court also dismissed a claim that the insurer defendant breached a duty to notify the plaintiff of the claim. Plaintiff acknowledged becoming aware of the loss approximately one month before the defendant issued any check.


Thomas R. Maeglin