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DECEMBER 13, 1989




This appeal involves a fire insurance policy containing provisions that protect a mortgagee's interest in insured property destroyed by fire. The question presented is whether the mortgagee timely gave notice to the insurer of a material change of occupancy or a material increase of hazard. The trial court found that a timely notice was given, and this Court affirms.

Lumbermens Mutual Casualty Company (Lumbermens) brought this action in the Circuit Court of Lamar County against the three appellees, (1) J. Corrigan Thomas, the insured property owner, (2) Deposit Savings Bank (Deposit Savings), the first mortgagee, and (3) First Guaranty Savings and Loan Association (First Guaranty), the second mortgagee, seeking a declaratory judgment establishing its non-liability under a fire insurance policy on Thomas' home. The trial court, sitting without a jury, entered a default judgment against Thomas for his failure to appear at trial and also ruled against First Guaranty, because it was not a named mortgagee on the policy. Neither of those parties has chosen to appeal the trial court's decision. The trial court ruled against Lumbermens, holding that, under the terms of the policy, the Company was liable to Deposit Savings for the amount of the mortgage, plus interest. Lumbermens has now perfected its appeal to this Court, asserting that the trial court erred by not holding that Deposit Savings failed to comply with the requirements of the mortgage clause, thereby terminating their right to recovery under the insurance policy.

 J. Corrigan Thomas, a defendant below, took out an insurance policy on his residence in Hattiesburg with the appellant

 Lumbermens Mutual Casualty Company. Deposit Savings held the first mortgage on Corrigan's home, and First Guaranty held a second mortgage taken out by Corrigan when he added a swimming pool behind the house. The house was underwritten as an owner-occupied residence by Lumbermens.

 By September of 1985, however, Thomas had abandoned the premises and moved to Houston, Texas. During that same month, Thomas became delinquent on his payments to the second mortgagee, First Guaranty, prompting an investigation of the premises. At some point between October 8 and October 10, Virgil Britt of First Guaranty visited the premises and determined that the house was vacant.

 Britt contacted Deposit Savings, the first mortgagee, and notified them that the property was vacant. Deposit Trust then contacted Clyde Burchfield, an independent contractor in the business of inspecting mortgaged properties and taking precautionary measures to protect them from vandals and arsonists. Burchfield inspected the property on October 11, taking pictures in the process. As a result of his inspection, Burchfield concluded that the property was indeed vacant, and informed Deposit Savings of this fact by a letter mailed that day. October 11, 1985 was a Friday, and the following Monday was Columbus Day, a national holiday. It is therefore unlikely that the letter could have reached Deposit Savings earlier than Tuesday, October 15. This fact is important because Lumbermens maintained at trial that Deposit Savings unnecessarily delayed in notifying them of the property's vacant status.

 On October 16 or 17, Deposit Savings instructed Burchfield to secure the house by making sure the utilities were off, pumping the water out of the swimming pool, draining the water out of the pipes in the house, boarding up windows and doors, and securing the garage door. Burchfield also placed a lock on the front door and, because Thomas was trying to sell the house, delivered a key to Thomas' realtor.

 Thomas' insurance policy with Lumbermens contained a "standard union mortgage clause" as required by 83-13-9, M.C.A. (Supp. 1989). By the terms of the mortgage clause, a mortgagee (here, Deposit Savings) is obligated to apprise the insurance company of "any change of ownership, or occupancy or increase of hazard which shall come to the knowledge of said mortgagee . . . ." If the mortgagee fails to follow through on this obligation, the insurance policy becomes null and void.

 Deposit Savings notified Lumbermens of the vacancy on October 25, 1985. Unfortunately, by that time, an unknown arsonist had destroyed the Thomas residence. It has never been

 suggested that Deposit Savings had anything to do with setting the fire. The trial court, sitting without a jury, found that the dwelling had been destroyed on October 24. This finding was consistent with Virgil Britt's testimony to the effect that he had learned of the fire by 10:00 a.m. on October 25.

 In this declaratory judgment proceeding, the trial court found in Deposit Savings' favor, holding that the two-week delay in notifying Lumbermens of the vacant status of the residence was not unreasonable. The court also held that since Lumbermens would have been required to give ten (10) days notice to Deposit Savings before they could have cancelled the policy, the cancellation could not have become effective prior to the fire loss on October 25. Lumbermens has now appealed the trial court's decision to this Court.

 Prudent property owners protect their investments with fire insurance policies, and, where property is encumbered by mortgages, those fire insurance policies contain clauses to protect the mortgagee's interest in event of a fire loss. Miss. Code Ann. 83-13-9 (Supp. 1989). These provisions in fire insurance policies are generally referred to as mortgage clauses, and the provision involved in this policy is a typical standard union mortgage clause, which has been interpreted to be a separate contract of insurance between the mortgagee and the insurer. Weems v. American Security Insurance Company, 450 So. 2d 431 (Miss. 1984); Peerless v. Bailey Mortgage Co., 345 F. 2d 14, 16 (5th. Cir. 1965). In this case, the insurer's position is that because the mortgagee was under a duty to report a change in occupancy or an increase in hazard under the policy and failed to do so in a timely manner, it forfeited any claims under the policy.

 Under Lumbermens' sole assignment of error, it claims that Deposit Savings waited an unreasonable length of time before notifying them of the house's vacant status, thereby terminating their right to the insurance proceeds when the house was destroyed. Lumbermens invokes the language of the "mortgage clause" of its policy to avoid liability. ...

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