A lender was shown as loss payee with respect to physical damage coverages in an automobile policy. After inspecting damage to the covered car that was incurred in an accident, the insurer issued a settlement check payable jointly to the named insured and the lender.

The insured presented the check to the bank on which it was drawn, without the lender having endorsed it, and was paid the full amount. The lender sued the insurer for breach of contract. A motion to dismiss by the insurer, contending that it had discharged its obligation, was granted by the trial court. The lender appealed.

The appeal court noted that, ideally, the lender "should have sought payment directly from the bank, or against (the insured), since the loss ultimately must fall on the bank, which was in the best position to prevent the error."

The court held that payment of a check to one copayee without the endorsement of the other copayee does not discharge the drawer of the check from its obligation. The judgment of the trial court, dismissing the lender's complaint, was reversed and the action was remanded for further proceedings.

(GENERAL MOTORS ACCEPTANCE CORPORATION v. ABINGTON CASUALTY INSURANCE COMPANY. Supreme Judicial Court of Massachusetts, Middlesex. November 3, 1992. 602 North Eastern Reporter 2d 1085.)