Mortgagee May Join With Plaintiff in Suit Against Insurer
Every homeowners policy contains a standard mortgage clause that hold that the mortgagee will be paid if the claim made by the named insured is denied for any reason in which the mortgagee is not involved, such as an arson-for-profit. Prudent and professional insurance claims people, when faced with a claim that is not covered because of the fraud of the insured immediately gives notice to the insured and then advises the mortgagee(s) of the right to submit a separate claim for the claim up to its interest in the property.
In Austin-Cesares v. Safeco Ins. Co., SC 19081 (Conn. 12/03/2013) the Supreme Court of Connecticut was asked by a prospective intervenor, BSI Financial Services, Inc. (BSI), to reverse the trial court’s denial of its motion to intervene in a breach of contract action brought by the plaintiff, Faith Austin-Casares, against the defendant, Safeco Insurance Company of America (Safeco). The plaintiff had alleged that Safeco improperly had denied her claim for insurance coverage after a fire damaged her home. BSI, as the holder of the note and mortgage on the plaintiff’s home, filed a motion to intervene in the underlying action. The trial court denied the motion as untimely on the ground that the homeowner’s insurance policy issued to the plaintiff by the defendant required that any action against the defendant be commenced within one year of the alleged loss or damage, and BSI did not file its motion within that one year limitation period.
In her complaint the plaintiff alleged that her home in the town of Andover had been damaged by a fire. The home was covered for fire loss by a homeowner’s insurance policy (policy) that Safeco had issued to the plaintiff. Safeco denied plaintiff’s claim despite the plaintiff’s alleged compliance with all of the policy provisions and obligations. Safeco responded that the policy was void because the plaintiff had concealed or misrepresented material facts or circumstances and that there was no coverage under the policy for the claimed loss because the plaintiff never had resided at the subject property. The record was silent whether, after the denial, Safeco had given notice to BSI of its right to file a separate claim.
BSI claimed that, as the holder of the mortgage, it had a direct and substantial interest in the litigation since the policy was security for its loan. It claimed its interest was not adequately represented by any other party to the litigation, its interest would be impaired by the disposition of the litigation without its involvement, and its motion to intervene was timely.
INTERVENTION AS OF RIGHT
It is well established in Connecticut that a party seeking to intervene in a matter as of right must satisfy a four part test: (1) ‘‘[t]he motion to intervene must be timely’’; (2) the proposed intervenor ‘‘must have a direct and substantial interest in the subject matter of the litigation’’; (3) the proposed intervenor’s ‘‘interest must be impaired by disposition of the litigation without the [proposed intervenor’s] involvement’’; and (4) the proposed intervenor’s ‘‘interest must not be represented adequately by any other party to the litigation.’’ Episcopal Church in the Diocese of Connecticut v. Gauss, 302 Conn. 386, 397–98, 28 A.3d 288 (2011).
Whether a motion to intervene is timely requires a determination of how long the intervenor was aware of an interest before he or she tried to intervene, any prejudicial effect of intervention on the existing parties, any prejudicial effect of a denial on the applicant and consideration of any unusual circumstances either for or against timeliness.
Connecticut has recognized that determinations of timeliness require the exercise of judicial discretion. Factors to consider include the nature of the interest and the purpose for which the intervenor is seeking to be brought into the action. There are no absolute ways to measure timeliness.
There is no indication that the trial court considered any factors other than the one year suit provision in the policy. In particular, the record does not reflect any consideration of BSI’s argument that the motion to intervene related back to the original complaint or any assessment of potential prejudice to either party that might stem from a decision to grant or deny the motion to intervene.
The Supreme Court, after reviewing the facts and the law concluded that the trial court improperly made the determination without first considering BSI’s claim that the motion to intervene related back to the original complaint. Under the relation back doctrine, a party properly may amplify or expand what has already been alleged in support of a cause of action, provided the identity of the cause of action remains substantially the same. If a party seeks to add new allegations to a complaint and a statute of limitations applicable to those allegations has run since the filing of the complaint, the party must successfully invoke the relation back doctrine before amendment will be permitted. An amendment relates back when the original complaint has given the party fair notice that a claim is being asserted stemming from a particular transaction or occurrence, thereby serving the objectives of the statute of limitations, namely, to protect parties from having to defend against stale claims.
A motion to intervene may relate back to an original complaint when, as in the present case, the identity of the cause of action remains substantially the same and arises out of a single group of facts, and when the prospective intervenor is the real party in interest.
Safeco claimed at oral argument that the motion to intervene must be considered a new and separate action because BSI, as an “innocent” mortgagee, might not be subject to the same defenses as the plaintiff. Safeco contends that it would be prejudiced if it could be held liable to BSI for a claim for which it could not be held liable to the plaintiff.
There is no question that Safeco was aware of its potential liability to BSI because the standard or union mortgage clause in the policy specifically provided that “any loss payable under [the policy] shall be paid to the mortgagee” and that the denial of an insured’s claim “shall not apply to a valid claim of the mortgagee . . . .”
If the trial court, after such consideration, determines that the motion to intervene as of right is timely, the trial court must then assess the remaining relevant factors in determining whether to grant the motion to intervene as a matter of right.
It is very likely that the trial court saw no reason to do so in light of its erroneous determination that the motion to intervene was categorically barred by the policy’s limitation period. Accordingly, in reversing the trial court’s denial of the motion to intervene and remanding the case for further consideration of that motion, we direct the trial court, on remand, to exercise its discretion with respect to BSI’s request for permissive intervention in the event that it denies BSI’s request to intervene as a matter of right.
This case could have been avoided by Safeco by applying the terms and conditions of the policy after it denied the Plaintiff’s claim. It knew that the contract between the insurer and the mortgagee was separate and distinct from the contract between the insurer and the named insured, the Plaintiff.
Had Safeco advised BSI of the denial of the Plaintiff’s claim at the time it occurred and demanded a sworn proof of loss from BSI which would have been limited to the amount of its loan. If the loss of BSI was covered it would have paid, cross-complained against the Plaintiff for the amount it was required to pay to BSI and this suit would never have occurred.
© 2013 – Barry Zalma
Barry Zalma, Esq., CFE, has practiced law in California for more than 40 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally, for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.
Specialty Technical Publishers recently published Mr. Zalma’s new E-Book, “Getting the Whole Truth” which is available at http://www.stpub.com/Getting-the-Whole-Truth_p_254.html.
Mr. Zalma recently published the e-books, “Zalma on California Claims Regulations – 2013″; “Rescission of Insurance in California – 2013;” “Random Thoughts on Insurance” a collection of posts on this blog; “Zalma on Diminution in Value Damages – 2013,”“Zalma on Insurance,” “Heads I Win, Tails You Lose,” “Arson for Profit” and others that are available at www.zalma.com/zalmabooks.htm.