Catherine D. Munster, Esq. William C. Garrett, Esq.
James A. Varner, Esq. Gassaway, West Virginia
McNeer, Highland, McMunn & Michael C. Farber, Esq.
Varner, L.C. Sutton, West Virginia
Clarksburg, West Virginia Attorneys for the Appellee
Attorneys for the Appellant Craig Allen Smith, Executor of
the Estate of Laura Gaye Duffield
The Opinion of the Court was delivered PER CURIAM.
1. "Upon a motion for a directed verdict, all reasonable doubts and inferences should be resolved in favor of the party against whom the verdict is asked to be directed." Syllabus Point 5, Wager v. Sine, 157 W.Va. 391, 201 S.E.2d 260 (1973). 2. "A loss payee under a fire insurance policy is ordinarily looked upon to have a separate contractual right with the insurer. By reason of this contractual right, a lienholder who is named as loss payee on an insurance policy is entitled to the insurance proceeds to the extent of the amount of his debt which is independent of the claim of other lien or judgment creditors. A mortgagee or lienholder has no claim to the benefit of a fire insurance policy unless he has been named loss payee or the policy has otherwise been assigned to him . . ." Part, Syllabus Point 4, Fuller v. Stonewall Casualty Company of West Virginia, 172 W.Va. 193, 304 S.E.2d 347 (1983).
3. "A motion for summary judgment should be granted only when it is
clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not
desirable to clarify the application of the law." Syllabus Point 3, Aetna Casualty and Surety
Company v. Federal Insurance Company of New York, 148 W.Va. 160, 133 S.E.2d 770
This is an appeal by Ohio Farmers Insurance Company from an order of the
Circuit Court of Braxton County which directed a verdict for the appellee, Craig Allen
Smith, Executor of the Estate of Laura Gaye Duffield, and which declared that the Estate of
Laura Gaye Duffield was entitled to certain insurance proceeds. On appeal the appellant
claims that the circuit court committed reversible error in directing the verdict and that the
court erred in refusing to grant its motion for summary judgment. After reviewing the issues
presented and the documents filed, this Court agrees with the appellant's claim relating to
the directed verdict. The judgment of the Circuit Court of Braxton County is, therefore,
In 1989, Laura Gaye Duffield, whose executor is the appellee in this
proceeding, owned the capital stock in a business called the "Video Bank" located in Sutton,
West Virginia. This business was operated from the first floor of a building owned by Ms.
Duffield. On the second floor of the building were apartments which were also owned by
On or about October 1, 1989, Linda McCourt entered into a purchase
agreement with Ms. Duffield whereby Ms. McCourt agreed to purchase the capital stock of
the "Video Bank." At or about the same time Ms. McCourt executed a separate, collateral
security agreement, to secure the loan of the purchase money for the capital stock. The
capital stock of the "Video Bank" was the principal collateral under the agreement. The
inventory of the "Video Bank" was not made a part of the collateral.
At the time of the sale of the "Video Bank," Ms. McCourt also leased the first
floor premises of the Duffield real estate out of which the "Video Bank" was being operated.
Under the terms of the arrangements which Ms. McCourt and Ms. Duffield
entered into, Ms. McCourt agreed to make periodic payments toward satisfaction of the
purchase price of the stock and to make monthly rent payments for the leased premises. Ms.
McCourt also undertook to obtain liability insurance for the premises and obtain
property/casualty coverage in an amount at least equal to the outstanding balance of Ms.
McCourt's remaining obligation.
Following the transaction between Ms. McCourt and Ms. Duffield, Ms.
McCourt, on or about November 30, 1991, met with Loran Knicely, a real estate agent, to
discuss the acquisition of insurance to cover her new "Video Bank" business. In the course
of the conversation Ms. McCourt requested an insurance policy be issued to her to cover the
business personal property in the amount of $45,000.00, the balance of the purchase price.
She also requested liability coverage. At this time Ms. McCourt, apparently mistakenly,
identified the Home National Bank as a loss payee under the policy. She did not request that
Ms. Duffield be listed on the policy for any purpose. It does not appear that the Home
National Bank had any interest whatsoever in the transaction between Ms. McCourt and Ms.
Pursuant to Ms. McCourt's application for insurance the appellant, Ohio
Farmers Insurance Company, issued a policy, Business Owner's Policy Number BOP3 039
805, effective as of the date of the application. The policy which conformed to Ms.
McCourt's request, did not list Ms. Duffield as a loss payee.
Approximately one month after the insurance policy was issued, Ms. McCourt,
who apparently realized that the insurance policy issued to her failed to cover Ms. Duffield
for liability, as required by their agreement, again contacted Loran Knicely, her insurance
agent, and requested that her policy be endorsed to list Ms. Duffield as an additional named
insured under the policy solely for the purposes of liability coverage. Ms. McCourt supplied
Mr. Knicely with a copy of the lease agreement or portion thereof which obligated her to
obtain such liability coverage. Ms. McCourt did not request property/casualty coverage, nor
did she provide Loran Knicely with that portion of her purchase agreement which required
her to obtain property/casualty coverage. There is no evidence that Mr. Knicely was aware
of Ms. McCourt's obligation to maintain property/casualty coverage under the agreement.
After receiving the request for an endorsement the appellant, Ohio Farmers
Insurance Company, duly issued the requested endorsement and added Ms. Duffield as an
additional insured solely for the purpose of the liability coverage. The endorsement was
made exactly as requested by Ms. McCourt. Upon making the endorsement the Ohio
Farmers Insurance Company sent copies of the amended policy to Ms. McCourt, Home
National Bank, and Ms. Duffield.
Sometime after the endorsement was added to the insurance policy, Ms.
Duffield died, and Craig Allen Smith inherited the property in which the "Video Bank" was
located. He was also appointed executor of her estate.
On or about March 21, 1992, a water leak occurred in a second floor apartment
of the Duffield building. This leak resulted in water damage to the "Video Bank" inventory.
A subsequent investigation resulted in an admission by Ms. McCourt that after the leak she
had willfully and intentionally increased the damage to a substantial portion of the inventory
of the "Video Bank" by pouring water into and submersing parts of the inventory in water.
As a consequence of the intentional damage to the inventory, Ms. McCourt was
precluded from recovering on the policy issued by Ohio Farmers Insurance Company. Craig
Allen Smith, however, asserted that the Estate of Laura Gaye Duffield, as a lien- holder, had
a claim to the insurance proceeds.
To resolve the question of whether Mr. Smith, as executor of the Duffield
estate was entitled to the proceeds, the appellant, Ohio Farmers Insurance Company,
instituted the present declaratory judgment action in the Circuit Court of Ohio County.
In response to the filing of the action, Craig Allen Smith, as the Executor of
the Estate of Laura Gaye Duffield, filed counterclaims in which he asserted that he was
entitled to the insurance proceeds in issue. Among other things, he asserted that there had
been a negligent failure to list Ms. Duffield as the named insured for all purposes, that the
appellant, Ohio Farmers Insurance Company, had made a bad faith refusal to settle the claim,
and that Ohio Farmers Insurance Company had been guilty of defamation. Ohio Farmers
Insurance Company denied all these claims. Ohio Farmers Insurance Company also moved
for summary judgment.
The court denied the motion for summary judgment, and the case ultimately
went to trial. After three days of trial, at the close of the evidence, the trial court directed
verdicts in the case. The court found that Loran Knicely, the insurance agent, was instructed
by Ms. McCourt to list "Video Bank, Inc." as the insured on her insurance policy, to list
Home National Bank as the additional loss payee, and to list Laura Gaye Duffield as an
insured solely for the purposes of liability coverage. The court also found that Loran
Knicely accurately communicated Ms. McCourt's instructions to the appellant, Ohio Farmers
Insurance Company, and that the appellant accurately listed the payees as requested.
The circuit court also found that there was no evidence that Ohio Farmers Insurance Company had acted in bad faith in refusing to settle the matter or in bringing declaratory judgment inasmuch as there appeared to be two if not three competing claimants to the insurance proceeds. The court then went on to hold:
In agreeing to the terms of the Lease Agreement, the
intent of both McCourt and Duffield was for the former to
obtain liability insurance to protect the latter from such risks,
which was accomplished when McCourt sought and obtained
the endorsement to the subject policy.
In agreeing to the terms of the Agreement, the intent of
both McCourt and Duffield was for the former to obtain
property/casualty insurance to protect the latter's interest in the
inventory which was the subject of the Agreement, which was
not accomplished when McCourt sought and obtained the
subject policy nor when she subsequently obtained the
The Home National Bank did not have an insurable
interest in the proceeds of the policy inasmuch as the inventory
of the "Video Bank" had not been pledged as collateral for the
loan McCourt used to obtain the down payment to purchase the
Subsequent to the issuance of the policy--but before the
amendment adding Duffield as an additional insured solely for
the purpose of liability coverage--Smith contacted Knicely
inquiring about the policy's coverage of his decedent, Duffield.
Smith was informed by Knicely that it was appropriate for
McCourt to request any policy amendments inasmuch as it was
McCourt who had procured the policy for her corporation.
McCourt, who was not an agent of Ohio Farmers,
thereafter sought only the liability coverage for Duffield but not
the property/casualty coverage, nor did McCourt have Duffield
added as a loss payee in lieu of the Home National Bank, which
did not have an insurable interest in the inventory of "Video
Knicely was unaware from any source of the contractual
obligations of McCourt to Duffield other than the lease
agreement's requirement that liability coverage be obtained for
the benefit of Duffield.
The matter was tried to the jury upon the issue of
whether defendant Smith was entitled to coverage (1) Duffield
was not named as a loss payee, and (2) the failure to list her as
an additional insured for all purposes resulted in a lack of
entitlement for Duffield to receive policy proceeds, a position
raised in several plaintiff motions for summary judgment, but
which were not ruled upon.
After making all these findings the trial court proceeded to rule:
Duffield should have been entitled to compensation for
the loss sustained pursuant to the several agreements between
her and McCourt, but to which Ohio Farmers is not a party.
Duffield should not be penalized by virtue of the fact that
there was a failure by McCourt to list Duffield as a loss payee,
inasmuch as Duffield had an insurable interest in the inventory
whereas the Home National Bank did not.
Since Ohio Farmers has been compensated to afford such
protection, it should not be permitted to avoid its obligation as
a consequence of McCourt's apparent mistaken listing of Home
National Bank as the loss payee. Since Home National Bank
never had an insurable interest, McCourt must have made a
unilateral mistake of which Knicely was unaware in instructing
Knicely to list Home National Bank as the loss payee.
Furthermore, McCourt made a second unilateral mistake
of which Knicely was unaware when she returned to Knicely
and requested that Duffield be added to the policy as an
additional insured solely for the purposes of liability coverage.
Therefore, the Court concludes that the Home National
Bank should be removed as the loss payee and replaced by
Laura Gaye Duffield and her estate as loss payee, and that Smith
as the Executor of the Estate of Duffield is entitled to the
amount of his claim, to wit, $20,010.00.
As previously indicated in the present appeal, Ohio Farmers Insurance
Company takes the position that the circuit court committed reversible error in directing a
verdict against it. It claims that the court should have applied the clear and unambiguous
terms of the insurance contract and that the court erred in rewriting the contract to add Ms.
Duffield or her estate an additional loss payee. It also claims that the circuit court committed
reversible error in failing to grant its motion for summary judgment based on the estate's
complete lack of insurable interest in the policy proceeds.
In Wager v. Sine, 157 W.Va. 391, 201 S.E.2d 260 (1973), we discussed where a directed verdict was appropriate in a civil case. In Syllabus Point 5 the Court stated:
Upon a motion for directed verdict, all reasonable doubts
and inferences should be resolved in favor of the party against
whom the verdict is asked to be directed.
It appears that to direct a verdict for Craig Allen Smith, Executor of the Estate of Laura Gaye Duffield, the trial court in the present case, in effect, took action which resulted in the rewriting or reformation of the policy issued by Ohio Farmers Insurance Company. Such a rewriting or reformation was required in order for the trial court to direct or for the jury to return a verdict for the Estate of Ms. Duffield, inasmuch as Ms. Duffield was clearly not named a loss payee on the policy issued by Ohio Farmers Insurance Company, and our law is clear and well settled that a lienholder may not collect on an insurance policy unless the lienholder is specifically named as a loss payee, or unless the lienholder has received an assignment of the policy. On this point Syllabus Point 4 of Fuller v. Stonewall Casualty Company of West Virginia, 172 W.Va. 193, 304 S.E.2d 347 (1983), states, in part:
A loss payee under a fire insurance policy is ordinarily
looked upon to have a separate contractual right with the
insurer. By reason of this contractual right, a lienholder who is
named as loss payee on an insurance policy is entitled to the
insurance proceeds to the extent of the amount of his debt which
is independent of the claim of other lien or judgment creditors.
A mortgagee or lienholder has no claim to the benefit of a fire
insurance policy unless he has been named loss payee or the
policy has otherwise been assigned to him . . . .
In evaluating whether a rewriting or reformation of the policy is appropriate and correct in the present case, the Court notes that, an insurance policy is subject to reformation just as is any other contract. Further, the circumstances under which reformation is appropriate are discussed in some detail in American Employers Insurance Company v. St. Paul Fire and Marine Insurance Company Limited, 594 F.2d 973 (4th Cir. 1979), a federal case growing out of an accident which occurred in West Virginia. That case states:
A leading commentary, 13A Appleman, Insurance Law
and Practice 7607 (1976), explains the law as follows:
The general rules applying to the
reformation of other written contracts apply to
contracts of insurance, the courts will reform an
insurance policy, like any other instrument, to
effectuate the intention of the parties, and make it
set forth correctly the contract upon which the
minds of the parties met, and equity jurisdiction
applies to insurance policies as well as to other
agreements. And, like other contracts, fraud,
mutual mistake, or accident may give good
ground for reformation.
For reformation to be allowed on the basis of mutual
mistake, the same commentary goes on to say, 7608 at 309:
[T]he law requires that the alleged
mistake must have occurred through the
reduction of the understanding and agreed
intent of the parties to writing, so that the
written instrument does not represent the
The Restatement of Contracts, 504 (1932), sets forth
the critical test of "identical intention":
[w]here both parties have an
identical intention as to the terms to be
embodied in a proposed
written...contract...and a writing executed
by them is materially at variance with that
intention, either party can get a decree that
the writing shall be reformed so that it
shall express the intention of the parties, if
innocent third persons will not be unfairly
There are thus three basic prerequisites for reformation
of an insurance policy on the ground of mutual mistake: a
bargain between the parties; a written instrument supposedly
containing the terms of that bargain; and a material variance
between the mutual intention of the parties and the written
instrument. See Covington, Reformation of Contracts of
Personal Insurance, 1964 Ill.L.F. 543, 459. These elements
must be proved by "very strong, clear and convincing evidence."
State Farm Mutual Automobile Ins. Co. v. Hanson, 7 Ill.App.3d
678, 288 N.E.2d 523, 526 (4th Dist. 1972).
594 F.2d at 977.
It is clear from the foregoing that reformation is appropriate only where there
is a mutual mistake, rather than in a unilateral mistake situation such as the one involved in
the case presently under consideration. Also, reformation is appropriate only if the written
agreement or insurance policy does not conform to the clear unwritten agreement between
It unmistakenly appears in the present case that the unwritten agreement
between Ms. McCourt and Ohio Farmers Insurance Company never contemplated that Ms.
Duffield, or her estate, be a loss payee. The record is clear that Ms. McCourt never
requested that Ms. Duffield be named as a loss payee, and the record is also clear that the
written policy actually issued by Ohio Farmers Insurance Company conformed to Ms.
McCourt's request and conformed to the agreement between Ms. McCourt and Loran
Knicely who was acting as agent for Ohio Farmers Insurance Company.
It is obvious to this Court that the fundamental legal prerequisites for
reformation were never established in the present case and the trial court erred in reforming
the insurance policy issued by Ohio Farmers Insurance Company. Further, without such
reformation Ms. Duffield, (or her estate), who was not named loss payee on the policy as
written or changed by endorsement, is not legally entitled to the insurance proceeds under
the rule set forth in Syllabus Point 4 of Fuller v. Stonewall Casualty Company of West
In view of all the foregoing, the Court believes that the trial court erred in
directing a verdict against Ohio Farmers Insurance Company in this case.
The Court notes that Ohio Farmers Insurance Company also argues that the trial court should have granted its motion for summary judgment. Our rule relating to summary judgment is that:
"A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law." Syllabus Point 3, Aetna Casualty and Surety Company v. Federal Insurance Company of New York, 148 W.Va. 160, 133 S.E.2d 770 (1963).
Regarding the assertion of Ohio Farmers Insurance Company that the trial court should have
granted its motion for summary judgment, this Court disagrees since this Court believes the
trial court properly ruled that some inquiry concerning the facts of this case arguably was
appropriate and was needed at the time the motion was denied.
In light of the fact that the trial court erred in granting a directed verdict against
Ohio Farmers Insurance Company, this Court believes that the judgment of the Circuit Court
of Braxton County must be reversed. Further, since in this Court's view, the evidence
adduced was legally insufficient to sustain a verdict for Craig Allen Smith, as executor of
the Estate of Laura Gaye Duffield, this Court believes that it is appropriate that this case be
remanded with directions that the circuit court render judgment for Ohio Farmers Insurance
Company on the claims of Mr. Smith.
For the reasons stated the judgment of the Circuit Court of Braxton County is reversed, and this case is remanded with directions that the circuit court enter judgment for Ohio Farmers Insurance Company on the claims of Craig Allen Smith, as executor of the Estate of Laura Gaye Duffield.
Reversed and remanded with directions.