Department of Commerce File No. IN2104847
Under Minn. Stat. § 65A.01 (2002), a fraudulently obtained fire insurance policy is not void as to an innocent named mortgagee.
The opinion of the court was delivered by: Dissenting Randall, Judge
Affirmed Robert H. Schumacher, Judge
Considered and decided by Schumacher , Presiding Judge, Randall , Judge, and Hudson , Judge.
Relator Minnesota Property Insurance Placement, an insurance provider, challenges an order of the Commissioner of Commerce that it honor a damages claim filed by respondent HomeComings Financial Network, Inc. for losses sustained in a fire involving property insured by Minnesota Property and mortgaged to HomeComings. Minnesota Property argues that because the fire insurance policy naming HomeComings as mortgagee was fraudulently obtained without the named insured's knowledge, it was void as to all named parties, including HomeComings. We affirm.
In January 1999, Howard Gangestad purchased a residential property in Minneapolis for $25,000. Seven months later, respondent Craig Mattice purchased the property from Gangestad with a $54,000 mortgage from HomeComings and $6,000 cash.
Immediately after closing, Mattice signed a quitclaim deed transferring the property back to Gangestad. In exchange, Gangestad paid Mattice $6,000 cash and assumed the mortgage payments, which he guaranteed by making Mattice a beneficiary of his life insurance policy. Although Gangestad became the property's titleholder after the quitclaim transaction, he intentionally failed to record the deed in order to circumvent a mortgage provision authorizing HomeComings to call the entire mortgage due in case of a sale. Mattice's name remained on the title and on the mortgage, but he had no further financial involvement with the property. The transaction enabled Gangestad to use Mattice's credit to get a loan, in the form of a mortgage, from HomeComings.
In September 2000, Gangestad instructed his insurance agent to submit to Minnesota Property an application for insurance coverage for the property. Minnesota Property is an organization of insurers charged by statute with implementing the Minnesota Fair Plan Act, pursuant to which all Minnesota insurers share responsibility for insuring high-risk property. See Minn. Stat. § 65A.31-.42 (2002). Minnesota Property is administered by a board of directors authorized to take appeals from Minnesota Property's coverage decisions. The board's determinations can in turn be appealed to the Commissioner of Commerce. Minn. Stat. § 65A.39.
The insurance agent completed the application in Mattice's name and named Mattice as the owner of the property and HomeComings as mortgagee. The agent forged Mattice's signature to falsely certify Mattice's insurable interest in the property and the truth of the information contained in the application. There is no evidence in the record that Mattice had any knowledge of the application.
In September 2000, Minnesota Property issued a one-year $60,000 policy on the property naming Mattice as the insured and HomeComings as the mortgagee. The policy contained a standard mortgage clause providing that denial of a claim to the policy's insured"will not apply to a valid claim of the [policy's named] mortgagee."
In October 2000, the property was destroyed by arson. Mattice filed a property-damage claim with Minnesota Property and submitted a sworn statement in proof of loss indicating that he was the"fee owner" of the property. Minnesota Property denied Mattice's claim after its investigation revealed that the insurance application and policy were fraudulently obtained. Minnesota Property rescinded the policy and refunded the premiums. HomeComings filed a claim under the policy's standard mortgage clause. Minnesota Property denied HomeComings's claim, again reasoning that because the policy had been fraudulently obtained, it was null and void as to all covered parties, including mortgagee HomeComings.
Both Mattice and HomeComings appealed Minnesota Property's denial of their claims to its board of directors, which upheld the denials. The parties then appealed to the Commissioner, who consolidated the appeals and issued findings of fact, conclusions of law, and an order in April, 2002.
The Commissioner reversed Minnesota Property's decision to rescind the policy as to both Mattice and HomeComings. The Commissioner found that there was a fraudulent misrepresentation in the policy application: the statement that Mattice had an insurable interest in the property. The Commissioner nonetheless concluded that Minnesota Property could not rescind the policy as to either Mattice or HomeComings because the policy's fraud provision and Minn. Stat. § 60A.08, subd. 9 (2002) authorize recission only if the misrepresentation is committed by or on behalf of the insured, and here, Mattice had no knowledge of the application.
The Commissioner affirmed the denial of Mattice's claim on the grounds that Mattice had intentionally defrauded Minnesota Property by claiming on the sworn statement in proof of loss filed after the fire to be the property's"fee owner." The Commissioner reversed Minnesota Property's denial of HomeComings' claim, reasoning that (1) the policy was not void under its own fraud provision or Minn. Stat. § 60A.08, subd. 9, because Mattice himself committed no fraud in the application, and (2) the Minnesota Standard Fire Insurance Policy, Minn. Stat. § 65A.01, subd. 3(c) (2002), precludes rescinding or voiding a policy as to a mortgagee because of a third party's fraud committed"before or during the term of [the] policy." The Commissioner remanded the case to Minnesota Property to determine and pay HomeComings's claim.
1. Was the fraudulently obtained insurance policy void as ...