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Truck fire coverage not barred by ‘conversion’ exclusion

Insurance policies on a lender’s interest in leased trucks provided coverage for a fire loss even when the primary insured was responsible for the fire, the 4th U.S. Circuit Court of Appeals said today in a case appealed from Alexandria federal court.

In April and May 2008, Wells Fargo Equipment Finance Inc. loaned RODO Inc. funds to buy three trucks. The loan contracts gave Wells Fargo a security interest in the trucks. In July 2008, RODO assigned the loan contracts and the trucks to Miriam Trucking.

In August 2008, State Farm Fire & Casualty issued an insurance policy to Miriam Trucking covering two of the trucks, and State Farm Mutual Automobile issued a policy covering the third truck, with both policies naming Wells Fargo as loss payee.

Miriam Trucking intentionally burned two of the insured trucks on Dec. 13, 2008, according to the parties’ stipulation. When State Farm refused to cover Wells Fargo’s loss, it sued.

Each State Farm policy had a “Loss Payable Endorsement’ that excluded coverage for a “loss” that resulted from “conversion, secretion or embezzlement …” The alleged arson arguably was a “conversion” that barred coverage. But the Alexandria U.S. District Court said State Farm had to pay Wells Fargo, even if the exclusion meant the carrier did not have to pay Miriam Trucking as the primary insured.

Upholding Wells Fargo’s win, the 4th Circuit agreed with the district court and “most of the other courts to consider similar policy language that the conversion exclusion does not unambiguously apply to bar coverage” for the loss payee. The court’s seven-page unpublished opinion is here.
–Deborah Elkins

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