Satisfaction of Mortgage Eliminates Right of Mortgagee to Recover from Homeowners Policy
Barry Zalma
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In Thomas P. Williams, Sr. v. Nationwide Insurance a/k/a Nationwide Mutual Insurance Company, Civil Action No. 22-1090, United States District Court, E.D. Pennsylvania (March 24, 2023) Nationwide denied the claim of its insured because they failed to comply with the Policy’s post-loss duties by failing to appear for scheduled examinations, not producing requested documents, making material misrepresentations to Nationwide and because Nationwide’s investigation of the fire revealed that it was “intentionally set.”
The homeowners sold the fire-damaged property to the plaintiff. The money from the sale was used to satisfy the entirety of the homeowners’ outstanding mortgage with a bank.
The plaintiff requested that the insurer reimburse him for the amount he claims he paid toward satisfying the homeowners’ mortgage. He based his request on a standard mortgage clause in the homeowners’ insurance policy, which stated that a denial of the homeowners’ claim would not preclude payment to a valid claim of the mortgagee.
PNC Bank was the original mortgagee. The plaintiff claims that he stepped into the shoes of the bank once he allegedly paid the balance of the mortgage. Thus, the plaintiff claims that he is entitled to the same payment the insurer would have had to pay to the bank, namely the amount it would cost to repair the property.
The insurer refused to pay the plaintiff’s claim and the plaintiff sued.
PROCEDURAL HISTORY
The plaintiff Thomas P. Williams alleged that he had purchased a fire-damaged property and paid off the mortgage encumbering the property.
FACTUAL BACKGROUND
The Ruchs owned property located in Albrightsville, PA (“the Property”). They had insured the Property for property damage under a policy with Nationwide (“the Policy”) and had a mortgage on the Property with PNC Bank NA (“PNC”).
A fire caused damage to the Property. The Ruchs submitted a claim to Nationwide under the Policy, and Nationwide eventually determined that the amount of the adjusted claim was $103,000.00. However, Nationwide later denied the claim because of breach of condition and fraud.
The Policy contained a mortgage clause allowed payment to the bank upon receipt of a proof of loss. Williams purchased an assignment of the proceeds of the Policy from the Ruchs but not the bank.
At the time of the sale, the Ruchs owed $135,490.13 on the mortgage to PNC and used the funds from the sale to satisfy the outstanding balance. At that time, Nationwide had not made any payment to PNC pursuant to the mortgage clause. After receiving the payment, PNC filed a Satisfaction of Mortgage with the Carbon County Recorder of Deeds.
DISCUSSION
Williams argued that because his funds paid to the Rauch’s satisfied the mortgage on the Property and because Nationwide would have had to pay PNC if it fulfilled the policy conditions, he stepped into the shoes of PNC. Nationwide argued that it had no obligation to pay under the mortgage clause because the mortgage was satisfied. Further, Nationwide contended that Williams misconstrues his property interest because he stepped into the shoes of the mortgagor (the Ruchs), not the mortgagee (PNC). When he bought the property Williams’ interest in the property became that of owner, not mortgagee. He had no rights under Nationwide’s Policy.” The court concluded that Nationwide was correct on both points.
There was no evidence demonstrating Williams assumed any legal rights under the mortgage. While Williams novel argument demonstrates a logical creativity, he cites no case law, and the court found none to support his contention that a purchaser of a property steps into the shoes of the mortgagee when the funds from the purchase are used to satisfy an outstanding mortgage.
Duty to Pay Pursuant to the Mortgage Clause
Nationwide averred that Williams had no cognizable claim because the Ruchs satisfied the mortgage at closing and there was no present obligation to pay. Because the law permits a mortgagee to recover the amount necessary to satisfy the mortgage but no more, the court found that because the mortgage was satisfied and there is no evidence of a new mortgage, the mortgagee is not entitled to any further payment under the Policy’s standard mortgage clause.
The fire damaged the Property and after the loss, Williams obtained his interest in the Property. The insured mortgage was fully satisfied and neither party presented any evidence that once Williams obtained his interest, there was any outstanding mortgage on the Property. Therefore, any further recovery under the Policy would constitute an unjust enrichment for the mortgagee.
At bottom, the mortgagee cannot seek further payment under the Policy and Nationwide had no obligation to pay. The court granted Nationwide’s motion for summary judgment and denied Williams’ cross-motion for summary judgment.
ZALMA OPINION
Nationwide had two contracts: first with the Ruch’s as named insured and second with PNC Bank as mortgagee. Once Nationwide denied the claim of the named insureds it had the obligation to pay PNC if it presented a sworn proof of loss. Before PNC even attempted to protect its rights under the policy Williams purchased the property and the money he paid to the owners was used to satisfy the mortgage, thereby eliminating the right of PNC to make a claim to Nationwide. Had Williams obtained an assignment from PNC rather than the Rauch’s he would have a claim. He did not and his “creative” argument failed.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]
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Notice of Claim Later than 60 Days After Expiration is Too Late
Post 5089
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Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.
In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
FACTUAL BACKGROUND
Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...
No Coverage if Home Vacant for More Than 60 Days
Failure to Respond To Counterclaim is an Admission of All Allegations
Post 5085
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In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.
BACKGROUND
On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
Plaintiff filed suit ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
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Health Care Fraud Trial Results in Murder for Hire of Witness
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Professional Health Care Services Exclusion Effective
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In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
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Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...