## Facts

- W. M. Acree owned a residence in Oklahoma insured under two fire policies issued by Hanover Insurance Company and Fireman’s Fund Insurance Company.
- On March 8, 1974, Acree entered an executory contract to sell the property to Donald and Joyce Martin for $125,000, with closing and possession set for July 8, 1974.
- The contract gave the Martins an option to refuse to complete the sale and recover escrow money if the property was damaged “to any appreciable extent” by fire.
- The contract did not assign responsibility for maintaining insurance or specify entitlement to insurance proceeds if a loss occurred.
- Acree renewed the fire insurance policies on June 18, 1974.
- On June 23, 1974, before closing, the property was damaged by fire and vandalism.
- The Martins elected to complete the purchase, paid the full contract price, and took possession; they claimed the closing occurred with an understanding they would receive insurance proceeds, which Acree denied.
- Acree sought payment under the policies; the insurers declined, and Acree sued in federal court under diversity jurisdiction. The Martins intervened claiming the proceeds.
- The insurers deposited the proceeds into the court registry and did not participate in the appeal; the dispute was between Acree and the Martins over entitlement to the proceeds.

## Issues

1. Under Oklahoma law, who is entitled to fire insurance proceeds when an insured seller’s property is damaged during an executory sales contract, but the buyer later closes at the full contract price?
2. Does the characterization of fire insurance as a personal indemnity contract allow the seller to retain proceeds after receiving the full purchase price?
3. Do equitable conversion and trustee-like vendor duties require awarding the proceeds to the buyer to prevent a windfall to the seller?

## Decision

- The Tenth Circuit affirmed summary judgment awarding the insurance proceeds to the Martins.
- Applying Oklahoma law as predicted from equitable principles and analogous authority, the court held that the buyers were entitled to the proceeds after electing to close at the full price.
- The court treated Acree, as vendor and named insured, as holding any insurance recovery in trust for the Martins to the extent necessary to prevent double recovery.

## Legal Principles

- When a buyer completes an executory real estate purchase at the full contract price after a pre-closing casualty loss, equity may treat the vendor as holding insurance proceeds for the buyer’s benefit.
- Although fire insurance is generally a personal contract of indemnity with the named insured, equitable rules can limit the insured’s right to retain proceeds where retention would over-indemnify the seller.
- Under equitable conversion concepts, once a specifically enforceable sales contract exists, the vendor’s primary interest is in the purchase money, and the purchaser bears the economic effect of casualty loss if closing occurs at the original price absent an express contractual adjustment.
- Where the sales contract is silent on insurance and proceeds, and the buyer has an option to rescind but instead closes, default equitable principles can allocate proceeds to avoid a seller’s windfall.

## Conclusion

The court held that because the Martins closed at the full contract price after the pre-closing fire, Acree could not keep both the full purchase price and the insurance payout; the insurance proceeds were awarded to the Martins under equitable principles treating the seller as a trustee of the proceeds for the buyers.


Acree v. Hanover Ins. Co., 561 F.2d 216 (10th Cir. 1977)