Whether an insurer is obligated to pay loss proceeds to the secured creditor upon the destruction of insured property where the secured creditor has filed a financing statement, even though the insurer has no actual knowledge of the creditor.
No. A secured creditor's filing of a financing statement does not impose a duty on the insurer to conduct a UCC search to find potential secured creditors unnamed in the insurance policy. The insurer is not obligated to notify the creditor of its entitlement to loss proceeds for the collateral or to deliver those proceeds to the creditor.
The tenant-operator of a supermarket granted its landlords, Plaintiffs, a security interest in connection with its lease. Plaintiffs filed a UCC-1 financing statement covering the collateral. The tenant obtained an insurance policy to cover damages to the supermarket; however, the Plaintiffs were not named in the policy. Sometime thereafter, a fire destroyed the supermarket and the collateral. The insurance carrier paid the loss proceeds to the tenant who was the only loss payee named in the policy. Plaintiffs commenced a suit against the insurance provider to recover the amount paid to the tenants.
The Supreme Court denied the insurer's motion to dismiss for failure to state a claim and denied summary judgment for the creditors. The Appellate Division reversed and granted summary judgment for creditors reasoning that the filed financing statements presented the insurer with constructive notice of the creditors' security interest in the loss proceeds. The Court of Appeals reversed and denied the creditors' summary judgment motion. The Court held that the insurer was not obligated to notify and deliver the loss proceeds to the creditors. The Court reasoned that UCC § 9-306(1) does not impose an obligation on the insurer to conduct UCC searches for secured parties, unnamed in the policy, who might have a security interest in the insured collateral and therefore in the loss proceeds. The Court distinguished Rosario-Paulo, Inc. v. C & M Pizza Rest., Inc., 84 N.Y.2d 379 (1994), noting that "the carrier in Rosario-Paulo had a duty to preserve the proceeds, by interpleader or some comparable means, until the issue of ownership could be resolved." However, in the instant case, the insurance carrier had no actual knowledge of the existence of the Plaintiffs, secured creditors, and the Court held that the Plaintiffs' "UCC-1 filing, without more, did not change the carrier's obligation to pay the proceeds to its insured."
Prepared by the liibulletin-ny Editorial Board.