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Northern Security Insurance Co., Inc. v. Federal National Mortgage Association

Superior Court of Maine, Cumberland

November 26, 2014



Joyce A. Wheeler Justice

Before the court is the defendant Federal National Mortgage Association ("Fannie Mae")'s motion for summary judgment and Northern Security Insurance Company, Inc. ("Northern")'s cross-motion for summary judgment.


In 1987, Dona to Corsetti purchased property at 447 Gray Road[1] in Windham,, Maine that was secured by a mortgage in favor of Option One Mortgage Company ("COMC"). (Def/s Supp. S.M.F. ¶ 1.) In June 2006, OOMC assigned the mortgage to Green Tree Servicing, LLC ("Green Tree"). (Def's Supp. S.M.F. ¶ 2.) Defendant Fannie Mae acquired an interest in the property in September 2006. (Def/s Supp. S.M.F. ¶ 3.) In May 2012, Corsetti purchased an insurance policy to cover the property from plaintiff Northern Security Insurance Company, Inc. ("Northern"). (Def's Supp. S.M.F. ¶ 4.) The insurance policy named OOMC as the mortgagee. (Def's Supp. S.M.F. ¶ 5.) The policy covers the mortgageholder and its successors and assigns to the extent of their interest, provided the terms of the policy have been fulfilled. (Def.'s Supp. S.M.F. ¶ 8, as qualified.)

In 2011, Green Tree commenced foreclosure proceedings against Corsetti in the Superior Court. (PL's Add. S.M.F. ¶ 17.) Following a bench trial on June 18, 2012, Green Tree was granted judgment on July 16, 2012. (PL's Add. S.M.F. ¶ 18.) The redemption period expired on October 14, 2012. (PL's Add. S.M.F. ¶ 19.) Green Tree purchased the property on behalf of Fannie Mae at a public sale on November 29, 2012. (PL's Add. S.M.F. ¶ 20.) Northern was not notified of the foreclosure proceedings, the judgment, or the eventual sale to Green Tree. (PL's Add. S.M.F. ¶ 23.) Green Tree recorded the foreclosure deed granting title to Fannie Mae on December 12, 2012. (Def.'s Supp. S.M.F. ¶ 12.)

On December 7, 2012, a fire caused extensive damage to the property, which Fannie Mae values at approximately $230, 000.[2] (Def.'s Supp. S.M.F. ¶ 11; Def.'s Supp. S.M.F. ¶ 13.) Northern denied coverage under the policy on the grounds that it was not notified about the change in ownership from Corsetti to Green Tree. (Def.'s Supp. S.M.F. ¶ 14.) After denying coverage, Northern filed this declaratory judgment action. Fannie Mae counterclaimed seeking judgment that Northern must cover the fire loss under the Corsetti policy.


1. Standard of Review

"Summary judgment is appropriate if the record reflects that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law." Dussault v. RRE Coach Lantern Holdings, LLC, 2014 ME 8, ¶ 12, 86 A.3d 52 (quoting F.R. Carroll, Inc. v. TD Bank, N.A., 2010 ME 115, ¶ 8, 8 A.3d 646). "A material fact is one that can affect the outcome of the case, and there is a genuine issue when there is sufficient evidence for a fact-finder to choose between competing versions of the fact." Mcllroy v. Gibson's Apple Orchard, 2012 ME 59, ¶ 7, 43 A.3d 948 (quoting N. E. Ins. Co. v. Young, 2011 ME 89, ¶ 17, 26 A.3d 794). "Even when one party's version of the facts appears more credible and persuasive to the court, any genuine factual dispute must be resolved through fact-finding, regardless of the nonmoving party's likelihood of success." Lewis v. Concord Gen. Mut. Ins. Co., 2014 ME 34, ¶ 10, 87 A.3d 732. If facts are undisputed but nevertheless capable of supporting conflicting, plausible inferences, "the choice between those inferences is not for the court on summary judgment." Id. "Cross motions for summary judgment neither alter the basic Rule 56 standard, nor warrant the grant of summary judgment per se." F.R. Carroll, Inc. v. TD Bank, N.A., 2010 ME 115, ¶ 8, 8 A.3d 646.

2. Policy Coverage

Northern argues that it has no obligation to pay for the fire loss to Fannie Mae because it was not notified of the foreclosure proceedings and the change in ownership of the property as required by the policy. Northern further argues that the change in ownership from Corestti to Green Tree amounted to a "substantial change in risk" requiring notice to Northern. Fannie Mae argues that the language of the policy and supporting case law demonstrate that the mortgagee is covered notwithstanding foreclosure. According to Fannie Mae, because its interest in the property only increased upon foreclosure, it was not required to give notice of a change in ownership. The parties agree that this case presents a question of law that can be decided on summary judgment.

The parties focus their attention on Hartford Fire Insurance Company v. Merrimack Mutual Fire Insurance Co., 457 A.2d 410 (Me. 1983). In that case, Merrimack issued an insurance policy to the owners of a barn that included, "a standard mortgage clause providing for payment upon fire loss" to the mortgagee bank. Hartford, 457 A.2d at 411. The bank eventually foreclosed on the barn and put the property up for sale. Id. After the foreclosure, the property remained vacant until a fire destroyed the barn. Id. The court noted that Merrimack challenged recovery on three bases: "(1) The bank's increase in interest from mortgagee to owner; (2) the Bank's failure to notify Merrimack of the vacancy; and (3) the Bank's failure to notify Merrimack of the foreclosure." Id. at 415.

The court rejected all three of Merrimack's arguments. On the first issue, the bank's increase in interest, the court found: "That the mortgagee no longer has the status of mortgagee because it has foreclosed on the mortgage does not alone bar it from recovery." Id. at 412. The majority of the court's opinion discusses the second issue: the bank's failure to notify Merrimack of the vacancy. On that issue, the court first determined that the policy permitted unlimited vacancy. Id. at 413-14. The court then concluded that because the vacancy was not a breach of the policy, notice of the vacancy was not required. Id. at 414. Finally, on the issue of notice of the foreclosure, the court quoted the following from a leading treatise on insurance law:

A provision that the mortgagee shall give notice of any change of ownership known to him ordinarily applies only to transfers by the mortgagor to third persons. Accordingly, the mortgagee under an independent mortgage clause requiring him to notify the insurer 'of any change of ownership' is not required to give notice of the purchase of the insured property by himself at foreclosure during the period of redemption. This conclusion is based upon the theory that the conveyance or ...

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