"If a fire insurance contract between an insurer and a property owner includes a standard mortgage clause naming, as mortgagee, the lender under a deed of trust executed by the property owner to secure a debt owing on the property, the lender under the deed of trust pursuant to that clause has an independent and distinct contract with the insurer, as if the lender under the deed of trust had taken out a separate policy with the insurer, and is deemed to be an insured to the extent of the balance due it from the property owner." This fundamental conclusion was the basis for a decision that, in the absence of proper cancellation notice to a mortgagee, the lender was entitled to insurance proceeds when the named insured failed to repair the subject property after having been paid the amount of the loss by the insurer.

The named insured obtained a bank loan that was secured by a deed of trust, in which he agreed to keep the conveyed property insured against loss by fire. The bank was listed as mortgagee in the policy that he purchased. When the bank returned correspondence to the insurer with "no record" (of the account) written on it, the insurer removed the bank from the policy as mortgagee. There was no evidence that the bank was notified of the cancellation of its protection.

The named insured was paid a substantial sum when fire damaged the property. He had signed a proof of loss, prepared by an adjuster, that indicated there was no other secured interest in the property. He failed to repair the property and the insurer canceled the policy. He defaulted on his obligation to the bank and could not be located. Legal action by the bank against the insurance company resulted in a judgment in its favor for the full cost of repairs to the property, the total amount of its attorney's fees and costs, and a substantial amount of interest. The insurance company appealed.

The appeal court found that the bank "....had a separate and distinct contract with (the insurer) under the mortgage clause of the fire insurance policy and was deemed an insured by virtue of its deed of trust to the extent of the balance due from the property owner." It concluded that the bank was not given notice of cancellation in accordance with the mortgage clause in the policy and as required by West Virginia statute.

The judgment of the trial court was affirmed, in all respects, in favor of the mortgagee bank and against the insurance company.

(FIRSTBANK SHINNSTON, Plaintiff Below, Appellee v. WV INSURANCE COMPANY ET AL., Defendants Below, Appellants. WVSupreme Court of Appeals. No. 19760. July 25, 1991. CCH 1991-92 Fire and Casualty Cases, Paragraph 3362.)