Peacock Hospitality, Inc. d/b/a Holiday Inn Express-Burnet v. Association Casualty Insurance Company

Summary

The Texas Fourth Court of Appeals reversed a summary judgment in favor of Association Casualty Insurance Company in a dispute over alleged underpayment of a hotel water-damage insurance claim. The court held that a genuine issue of material fact existed regarding whether foreclosure left Peacock Hospitality with a breach-of-contract claim under the insurance policy. It also held that the insurer was not entitled to enforce a deed-of-trust covenant that purported to divest Peacock of its insurance-policy rights, and remanded the case for further proceedings.

Holdings

1. A mortgagor may retain the right to recover insurance proceeds or sue for an alleged underpayment of a pre-foreclosure loss when the foreclosure leaves a surplus, or leaves a deficiency smaller than the insurance proceeds and alleged underpayment. Because the evidence did not establish whether the foreclosure resulted in a deficiency or surplus, a genuine issue of material fact existed.
2. Association Casualty was not entitled to enforce the deed-of-trust covenant purporting to divest Peacock of rights in the insurance policy because the insurance company was not an intended third-party beneficiary of that covenant.
3. The summary judgment must be reversed because the trial court's ruling on the prompt-payment and tort claims was based on the conclusion that Peacock had been divested of its breach-of-contract claim, and that underlying conclusion was erroneous.

Questions Presented

1. Whether Peacock retained a right to sue Association Casualty for underpayment of a pre-foreclosure insurance claim after foreclosure of the mortgaged property.
2. Whether Association Casualty could enforce a covenant in the deed of trust that purported to transfer the insured's rights in the insurance policy to the foreclosure purchaser.
3. Whether the trial court properly granted summary judgment on Peacock's breach-of-contract, prompt-payment, and tort claims.

Disposition

reversed_and_remanded