## Facts

- State Farm Fire and Casualty Co. issued a Special Multi-Peril policy to Foreign Car Parts, Inc. covering buildings and also “contents, inventory and other chattels” (movable property).
- The policy forms included a “Mortgage Clause” stating it was “Applicable to buildings only,” and a separate loss payable clause form (LPC 17).
- The declarations page listed Security Homestead and Whitney National Bank of New Orleans as mortgagees; an endorsement effective April 12, 1977 clarified that Security Homestead related to real estate and Whitney related to “contents, inventory and other chattels.”
- Whitney held a $1,000,000 collateral mortgage on Foreign Car Parts’ movable property; the mortgage debt exceeded the claimed fire loss.
- On May 27, 1979, a fire damaged or destroyed property at Foreign Car Parts’ premises in Metairie, Louisiana.
- The court found the fire was caused by arson instigated by Robert Bradford Smith, the corporation’s president, registered agent, and general manager who supervised operations.
- Smith later pleaded guilty to the arson on April 9, 1980.
- The court found the movables had an actual value of $264,565 before the fire and $35,000 after the fire, for a contents loss of $229,565.
- The policy excluded coverage for loss caused by arson (a willful act) by the insured, and State Farm denied Whitney’s claim for the contents loss.
- Whitney sued State Farm in federal court seeking the policy proceeds for the damaged contents/chattel.

## Issues

1. Whether Whitney, as mortgagee of the insured’s contents and other chattels, was protected by a New York Standard/Union mortgage clause (or similar clause creating a separate insurer obligation) despite the insured’s arson.
2. If not, whether Whitney’s rights were only those of a simple loss payee, making its recovery barred because the insured’s arson voided coverage for the contents loss.

## Decision

- Judgment was entered for State Farm after a bench trial; Whitney recovered nothing for the $229,565 contents loss.
- The court held the policy’s standard mortgage clause, by its terms, applied to buildings only and did not protect Whitney’s interest in contents, inventory, or other chattels.
- Because Whitney was not covered by an applicable standard mortgage clause for movable property, Whitney was treated as a loss payee whose rights were no greater than the insured’s rights.
- The insured’s arson triggered the policy exclusion, so coverage for the contents loss was barred and Whitney’s derivative claim failed.

## Legal Principles

- A standard (New York/Union) mortgage clause creates a separate insurer–mortgagee agreement only for the property the clause expressly covers; language limiting the clause to “buildings only” confines that protection to building coverage.
- A loss payable clause generally makes the payee’s recovery depend on the insured’s right to recover; defenses good against the insured (such as an intentional-loss/arson exclusion) defeat the loss payee’s claim.
- When a corporation’s managing officer causes an intentional fire, that act can be attributed to the corporate insured for purposes of applying an arson/intentional-loss exclusion to the insured’s claim.
- Courts apply the policy’s written terms and do not extend building-only mortgage protections to contents coverage absent clear policy language doing so.

## Conclusion

Whitney could not collect under State Farm’s policy for the contents and chattel loss caused by the insured’s president’s arson because the policy’s standard mortgage clause protected mortgagees only as to buildings, leaving Whitney only the status of a loss payee for movables and therefore subject to the same arson exclusion that barred the insured’s recovery.


Whitney National Bank of New Orleans v. State Farm Fire and Casualty Co., 518 F. Supp. 359 (1981)