Harvey v. Worthen Bank & Trust Co.

George Bose Smith, Justice. More than a year after the three appellants bought a Dodge car from an automobile dealer the vehicle was heavily damaged in a collision. The purchasers then learned that the collision insurance upon the car, which had been cancelled by the insurance company several months earlier, had not been replaced. Upon being sued for the balance due on the conditional sales contract the purchasers filed a cross complaint against the appellee, Worthen Bank & Trust Company, asserting that the bank, which had financed the sale, had been at fault in failing to obtain a substitute policy of collision insurance when the first one was cancelled. This appeal is from a judgment sustaining a demurrer to the cross complaint and dismissing it. The essential facts are simple. The appellants bought the car from Bevis Dodge on April 12, 1966, executing a conditional sales contract for a deferred balance of $3,600.36, payable in 36 monthly installments. That balance included a charge of $323.00 for insurance on the car. The contract also contained this paragraph relating to insurance: Any sums spent by seller for insurance or taxes on the purchased property... will be repayable by buyer (with interest on each expenditure from the date thereof at 6% per annum); which reimbursable items will be added to and constitute a part of the Deferred Balance. If requested by seller, buyer will carry insurance upon said property for the full insurance value thereof the policy or policies (showing loss payable to seller as its interest may appear) to be delivered to and held by seller; and selle]' may apply any insurance proceeds upon the amount then owing hereunder in inverse order of maturity. The contract, which was on the bank’s printed form, was assigned to the bank by Bevis Dodge, with recourse. On December 2, 1966, the collision insurer cancelled its policy for an undisclosed reason and sent the unearned premium of $238.60' to the bank. The bank simply held the money, making no attempt .either to obtain substitute insurance or to pay the money to the purchasers. The car was damaged in a collision on May 19, 1967. On July 26, 1967, the bank applied the refunded premium to the principal debt and reassigned the contract to Bevis Dodge, who sold the car for salvage and brought this action for the unpaid balance of $1,670.44. The purchasers admitted, for the purposes of the demurrer to their cross complaint, that they knew of the cancellation of the policy and made no demand upon the bank to refund the premium or to purchase new insurance. Counsel for the bank, citing Providence Wash. Ins. Co. v. Ark. Farm Bureau, Finance Co., 221 Ark. 327, 253 S.W. 2d 226 (1952), insist that although the bank had the right to obtain insurance on the car it was under no duty to do so. Hence it is argued that the purchasers’ cross complaint did not state a cause of action. That argument is not sound when, as here, the buyer’s obligation includes the full amount of the insurance premium for the entire term of the contract. The point was decided in Dahlhjelm Garages v. Mercantile Title Ins. Co., 149 Wash. 184, 270 P. 434 (1928), in this language : The second objection is that the contract does not impose a mandatory duty to keep the automobile insured against injury by collision upon the appellant or its assignors. This objection has its foundation in the language used in the quoted part of the contract. It will be noticed that the language is that the seller may keep the automobile insured, not that it must do so. But it will be remembered that the seller exacted and was paid, in addition to the purchase price of the automobile, a stated sum for the very purpose of keeping it insured. If its obligation would have been otherwise optional, it became absolute when it made this exaction. To substantially the same effect see Minor v. Universal C.I.T. Credit Corp., 27 Ill. App. 2d 330, 170 N.E. 2d 5 (1960); Liretta v. Menard, La. App., 20 So. 2d 382 (1945); and Smith v. Hellman Motor Corp., 122 Misc. Rep. 422, 204 N.Y.S. 229 (1924). The case comes to us on demurrer, with all inferences to be resolved in favor of the cross complainants. We are unwilling to say that under the affirmative allegations of the purchasers there is no issue of fact with respect to the bank’s duty to obtain new insurance coverage or to afford the purchasers the opportunity of doing so. Reversed and remanded with instructions to overrule the demurrer. Byrd, J., dissents.