General Credit Corp. v. Imperial Casualty and Indemnity Co.

Brief Fact Summary. A clause in an insurance policy required a party with a security interest in the policy to pay the premiums if the individual benefited by the policy failed to pay the premiums.

Synopsis of Rule of Law. "Where words or other manifestations of intention bear more than one reasonable meaning an interpretation is preferred which operates more strongly against the party from whom they proceed, unless their use by him is prescribed by law."

Facts. The Plaintiff, General Credit Corp. (the "Plaintiff"), financed and subsequently had a lien (security interest) on two automobiles purchased by the Service Trucking Co. ("Service").  Service purchased an insurance policy from the Defendant, Imperial Casualty and Indemnity Co. (the "Defendant").   The insurance policy included the following provision:  "In case the . . . owner shall neglect to pay any premium due . . . the lienholder shall, on demand, pay the same."  The two automobiles were inured in a collision and the Plaintiff stipulated that the damage less the deductible was $1839.20.  The Defendant alleged that Service failed to pay $1786.86 in premiums on the two policies, and as such, wanted those monies to be set off against any damages the Plaintiff could recover from the Defendant.  The trial court awarded the Plaintiff $1786.86 in damages.  The Defendant was denied recovery.

Issue. "[W]hether the language in the loss payable clause 'provided, also, that in case the Lessee, Mortgagor or Owner shall neglect to pay any premium due under such policy the Lienholder shall, on demand, pay the same' is a condition or a covenant."

Held. The court concludes that the language is a covenant and affirms the trial court's judgment.  The court observes that the Restatement provides "[w]here words or other manifestations of intention bear more than one reasonable meaning an interpretation is preferred which operates more strongly against the party from whom they proceed, unless their use by him is prescribed by law."  The court then cites another Restatement section which says the above rule is oft applied to insurance companies, which regularly prepare the policy the language stems from.  The court concluded that the clause was a condition.  As a condition, the Plaintiff must pay "the premium on the insurance involved from and after the date of the demand if plaintiff desires to keep the insurance in force." Also, the parties stipulated that the insurance policy was in full force when the collision occurred and that the demand by the Defendant for payment did not occur until after the losses from the collision occurred and the policy was cancelled.

Discussion. This case demonstrates the tools courts use when construing whether certain language is a condition or a covenant.