218 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
[14] The primary function of a standard mortgage clause is “to furnish to the [lienholder] a reliable security in a definite sum free
61.Accordingly, most jurisdictions addressing the question recognize that a standard mortgage clause creates a separate contract
(1992);
Weems v. Am. Sec. Ins. Co.,
450 So.2d 431, 436 (Miss.1984);
Nationwide Mut. Ins. Co. v. Dempsey,
128 N.C.App. 641,
495 S.E.2d 914, 915 (1998);
Hunt,
488 S.E.2d at 343.Tennessee is among those jurisdictions recognizing that the “chief distinction
between the two types of clauses is that the standard/union clause establishes a contract between the insurer and loss payee”
which cannot be invalidated by the actions of the insured borrower.
Reeves,
36 S.W.3d at 61;
see also Phoenix Mut. Life Ins. Co.
ex rel. First Nat’l Bank of Lawrenceburg v. Aetna Ins. Co.,
166 Tenn. 126, 59 S.W.2d 517, 518 (1933) (“[T]he effect of the mort-
us is whether the commencement of foreclosure proceedings constitutes an “increase in hazard” which the Bank must report to the
insurer or risk invalidation of the policy. As noted above, it is undisputed that the Bank began, but did not complete, foreclosure
proceedings on the insured’s residence; that Tennessee Farmers was not notified of the institution of those proceedings; and that
the insurance policy requires notification of any increase in hazard, but does not specifically require notification of foreclosure pro-
ceedings.
sure proceedings did not necessarily affect the insurer’s risk, the Court reasoned that the commencement of foreclosure proceed-
ings did not warrant invalidating the insurance coverage.
Our review of cases from other jurisdictions reveals that courts have reached a similar conclusion on the issue of whether the
commencement of foreclosure proceedings constitutes an increase in hazard for purposes of a standard mortgage clause. In an
Indiana case, for example, the insurance policy contained a provision requiring the lienholder to notify the insurance company of
*6 In similar cases involving standard mortgage clauses requiring notice of an “increase of hazard,” courts have found that the plain
meaning of those words do not include an event such as a foreclosure proceeding, but rather, refer to physical conditions on the
insured property posing a more hazardous risk to the property.
See, e.g., West v. Green,
284 Ala. 517, 226 So.2d 302, 307 (1969);
Allen v. Houston Fire & Cas. Ins. Co.,
243 So.2d 905, 910 (La.Ct.App.1971);
see also Trs. of Schs. v. St. Paul Fire & Marine Ins.
Co.,
296 Ill. 99, 129 N.E. 567, 569 (1920) (holding that foreclosure did not increase the hazard for purposes of providing notice);
(1924) (noting policy language that “the mortgagee … shall notify this company of the commencement of foreclosure proceedings”);
Hole v. Nat’l Fire Ins. Co. of Hartford, Conn.,
122 Kan. 328, 252 P. 263, 263-65 (1927) (noting that “the policy contained a provision
that it became void if foreclosure proceedings were commenced.”).
The mortgage clause at issue in the present case contains no such language. Thus, the cases finding that the commencement of
foreclosure proceedings amounts to an increase in hazard based on specific language in the policy do not compel the result advo-
*7 Second, we decline to read into this policy an obligation to notify the insurer of the commencement of foreclosure. In our view,
the insurer is essentially asking us to write a new contract for the parties in accordance with its idea of what the policy should have
said. This we decline to do, as our duty is to construe and enforce the policy as written, not make a new contract for the parties on
different terms.
See Raulston v. Mut. Benefit Health & Accident Ass’n,
22 Tenn.App. 101, 118 S.W.2d 881, 884-85 (1938).
We do not agree that by its plain meaning the phrase “increase of hazard” includes the commencement of foreclosure proceed-
insurance as to the interest of the … mortgagee ... shall not be invalidated by an act or neglect of the mortgagor owner of the
property so insured, nor by any foreclosure or other proceedings or notice of sale relating to the property, nor by change in title
or ownership of the property, nor by occupation of the premises for purposes more hazardous than are permitted by the policy;
provided, that … the mortgagee … shall notify the insurance company of any
change of ownership or occupancy or
increase of
220 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
mencement of foreclosure proceedings.
*8 In addressing these arguments, we note that the structure of section 56-7-804 parallels the structure of the standard mortgage
clause in the policy. Like the policy, the statute provides that the lienholder’s interest in the property will not be invalidated by acts
or neglect of the insured or by foreclosure. The statute, again like the policy, includes a provision that the lienholder must notify the
insurance company of any increase of hazard of which the lienholder becomes aware. Thus, while protecting the lienholder from
Id.
at 490.
In a more recent case,
Provident Bank v. Tenn. Farmers Mut. Ins. Co.,
234 F. Appx. 393, No. 06-5502, 2007 WL 1296033 (6th
Cir.2007), the Sixth Circuit held that the insurer was not entitled to summary judgment because the term “foreclosure” in the insur-
ance contract was ambiguous. As in the case before us, the lienholder commenced foreclosure proceedings on the insured proper-
ty without notifying the insurance company. The insured homeowners filed for bankruptcy which stayed the foreclosure process.
The property was then destroyed by fire. The lienholder filed a claim, which was denied by the insurance company because the
lienholder failed to notify it of the foreclosure proceedings. The district court held that the initiation of foreclosure proceedings did
circumstances increase[ ] the risk assumed by the insurer.”
Id.
at § 94:19. Thus, an increase of hazard “requires either a change in
the insured or the insured property that will increase the probability that the property will be destroyed.”
Id.
In contrast with a physi-
cal hazard, a “moral hazard” is a “risk, danger, or probability that the insured will destroy … the insured property for the purpose of
collecting the insurance.”
Id.
at § 94:18. As indicated above, we decline to assume that the mere commencement of foreclosure
CHAPTER 10: NATURE AND TERMINOLOGY 221
III.
Conclusion
In sum, we hold that the commencement of foreclosure proceedings does not constitute an increase of hazard for notice purposes
under a standard mortgage clause in an insurance policy or for purposes of Tennessee Code Annotated section 56-7-804. There-
fore, the Bank’s failure to give notice to Tennessee Farmers of the commencement of foreclosure proceedings on the insured’s
residence does not invalidate the policy. Accordingly, the judgment of the Court of Appeals is reversed, and the case is remanded
FN1. The homeowner testified that her husband produced methamphetamine, which he sold to pay their bills. She testi-
fied that the house “blew up” and that her husband was burned in the fire. A police officer who investigated the fire testi-
FN2. We construe the policy phrase “increase in hazard” and the statutory phrase “increase of hazard” to be synonymous.
FN3. Although we quote the current language of section 56-7-804, we note that it is nearly identical to the version of the
FN4. The parties raise other issues, such as whether the Bank is prohibited on privacy grounds from disclosing a custom-
er’s personal financial information to an insurance company, and whether, assuming the Bank had a duty to notify the in-
surer of foreclosure, the commencement of foreclosure constitutes a foreclosure. Our resolution of the appeal makes it
unnecessary to reach these ancillary issues.
Supplemental Case Printout for:
Insight Into Ethics
Ohio App. 10 Dist.,2008.
Englert v. Nutritional Sciences, L.L.C.
FN1. Rodney Zeune was the CEO of Nutritional Sciences, which is now defunct.
{2} The following facts are relevant to our discussion. Nutritional Sciences was an Ohio corporation that produced nutritional type
supplements. As a promotion, Nutritional Sciences sponsored a contest called the “Quarter Million Dollar Challenge” (“the con-
test”), whereby a panel of judges would choose several winners (in various categories) based upon a contestant’s body transfor-
FN2. Nutritional Sciences’ financial difficulties were the reason given for the reduced prize amount.
{4} In July 2005, Englert filed suit against Nutritional Sciences, alleging breach of contract, fraud, unauthorized use of likeness,
invasion of privacy, and violation of the Ohio Consumer Sales Practices Act (CSPA). The parties filed cross-motions for summary
judgment, which the trial court resolved in favor of Nutritional Sciences. Englert filed a timely appeal, advancing the following seven
assignments of error for our review:
VI. THE TRIAL COURT ERRED AS A MATTER OF LAW IN HOLDING THAT APPELLEES ARE NOT LIABLE TO MS.
ENGLERT FOR FRAUD.
VII. THE TRIAL COURT ERRED AS A MATTER OF LAW IN HOLDING THAT APPELLEES ARE NOT LIABLE TO MS.
ENGLERT FOR VIOLATION OF THE OHIO CONSUMER SALES PRACTICES ACT.
{5} This matter was decided in the trial court by summary judgment, which under Civ.R. 56(C) may be granted only when there
(1995), 101 Ohio App.3d 38, 41-42, 654 N.E.2d 1327.
{7} We shall address Englert’s first, second, and third assignments of error, as they are interrelated. The gravamen of Englert’s
argument is that the trial court erred by finding the reservation of rights provision to be valid. Englert asserts that the contest was a
unilateral contract, and, as such, Nutritional Sciences was precluded from changing the rules, i.e., the amount of the prize, after
she had fully performed. While we are certainly sympathetic to Englert’s position, we are constrained to follow the law, as it exists
the contest.”
Bellows v. Delaware McDonald’s Corp.
(Mich.Ct.App.1994), 206 Mich.App. 555, 558, 522 N.W.2d 707, citing
Natl.
Amateur Bowlers, Inc. v. Tassos
(D.Kansas 1989), 715 F.Supp. 323, 325;
Las Vegas Hacienda, Inc. v. Gibson
(Nev.1961), 77
Nev. 25, 27, 359 P.2d 85. We find that an application of the foregoing to the facts of this case clearly demonstrates the existence
of a contract. To that end, the cases cited by the dissent in paragraph XXX support that conclusion, as each court therein con-
strued the contest at issue as a unilateral contract. Unlike this case, however, none of those cases appear to have involved a res-
FN3. Although Ohio cases involving contests are scant, this principle has been applied in Ohio in cases involving tourna-
ments sponsored by voluntary associations. For example, in
Kresse v. North Coast Charter Boat Assoc.,
Lake App.
No.2006-L-055, 2006-Ohio-6871, is demonstrative of the above principle.
Kresse
involved a dispute over which team won
1997), Hamilton App. No. C-961011;
Stibora v. Greater Cleveland Bowling Assoc.
(1989), 63 Ohio App.3d 107, 577
N.E.2d 1175.
{11} A review of both federal and state case law discloses that giving force and effect to limitations contained in rules and regula-
tions has been universally applied. For example, in
McBride v. New York City Off-Track Betting
(N.Y.App.1978), 66 A.D.2d 770,
410 N.Y.S.2d 868, four plaintiffs purchased that day’s Pick-Four tickets. After purchasing the tickets, the defendant cancelled all
McDonald’s. See, also,
Bellows,
supra (McDonald’s was not required to pay plaintiff, who held the winning ticket to a $10,000,000
prize, because the rules of the contest provided that immediate family members were not eligible to participate, and the plaintiff’s
married daughter, who lived thirty miles away, worked for McDonald’s);
Tackett,
supra (McDonald’s was not required to pay plaintiff
the prize amount because the ticket contained an error and the contest’s rules clearly stated that pieces that contained errors were
void, notwithstanding the fact that the plaintiff did not create the error and did not know it contained the same when purchased).
[1] {14} The contractual principles and case law discussed above do not support the finding that Nutritional Sciences breached its
contract with Englert. The starting point for our analysis is the contest rule that provided, “[a]ll winners must agree to the regula-
tions outlined specifically for winners before claiming championship or money.” (Complaint at Exhibit A.) The provision that corre-
sponds to this rule is Nutritional Sciences’ reservation of rights, in which it explicitly reserved “the right to cancel the [contest] at
anytime, or to make changes as we see fit.”
Id.
In reading the contract as a whole and giving effect to each provision, as we are
(1992) 64 Ohio St.3d 635, 638, 597 N.E.2d 499.FN4 And, as it stands, all contest winners must agree to abide by the rules and reg-
FN4. It should be noted that Englert does not assert that the reservation of rights provision is ambiguous.
{15} Nutritional Sciences’ rights, however, were not unfettered. Reading the rule and regulation together to garner its meaning as a
whole, it is clear that, while Nutritional Sciences could cancel the contest at any time, or make any changes it deemed necessary, it
CHAPTER 10: NATURE AND TERMINOLOGY 225
could only do so “before” a winner claimed her prize. (Complaint at Exhibit A.) In other words, Nutritional Sciences could exercise
FN5. We note, as a practical matter, that the results of a simple Google search disclosed that promoters or sponsors of
contests routinely include reservations of rights, similar to the one at issue here, in their rules and regulations. Thus, it
would appear that Nutritional Sciences is in good contractual company. See, e.g., http://www.officemaxfeedback .
com/SurveyTemporary.aspx?Template=Rules & Roles =User (last visited May 21, 2008);
http://www.nbc15.com/biggestloser/misc/9089966.html (last visited May 21, 2008) and http://www.nbc.com/The_Bigge
st_Loser/dietcenter/zip_n_ steam/sweepstakes_rules. shtml (last visited May 21, 2008); http: //
www.mtv.com/onair/ffyr/discrimination/psa_contest_rules.jhtml (last visited 5/26/2008);
http://www.pensacola.com/contestrules.aspx (last visited 5/19/2008); http://www.absolutepoker.com/vip/terms.asp (last
visited 5/14/2008); http://w ww.eastbaymitsubishi.com/kick_to_win.htm?bhcp=1 (last visited 5/14/2008);
http://www.boatohio.com/rules.shtml (last visited 5/19/2008); http://www.citylotto.com/rules.php (last visited 5/19/2008);
http://www.psaid .org/Public?PublicContent.aspx?page=rules (last visited 5/19/2008);
CV 97-183-M;
Aiena v. Olsen
(S.D.N.Y.1999), 69 F.Supp.2d 521, 533 (“the sponsor’s ability to amend as to those who have retired
prior to any given amendment depends upon the clarity with which the plan reserves that right”).
{19} We further note that in
Cardinal Stone Co., Inc. v. Rival Manuf. Co.
(C.A.6 1982), 669 F.2d 395, the sales contract between
the parties included a reservation of rights provision that stated, “Buyer reserves the right to change or amend the specifications
and to terminate this purchase order in whole or in part at any time* * *.”
Id.
at 396. Rival terminated the contract, and Cardinal filed
testant are required to abide by all the rules and regulations set forth in the terms of the contest. In this case, the rules and regula-
tions reserved to Nutritional Sciences the right to cancel or modify the terms of the contest at any time, and, by participating in the
contest, Englert agreed to be bound by the same. The language of the contest is plain and unambiguous, and, thus, needs no in-
terpretation. Nor is there any legal basis to excise the reservation of rights from the contract. Thus, in the final analysis, Nutritional
Sciences’ act of changing the amount of the prize was not a breach of contract, but, rather, the exercise of its contractual right.
claim for invasion of privacy also fails. See, e.g.,
Morenz v. Progressive Cas. Ins. Co.,
Cuyahoga App. No. 79979, 2002-Ohio-
2569, at ¶ 33;
Schlessman v. Schlessman
(1975), 50 Ohio App.2d 179, 181, 361 N.E.2d 1347. Thus, Englert’s fourth and fifth as-
signments of error are overruled.
{23} In her sixth assignment of error, Englert contends that Nutritional Sciences “misrepresented material facts with knowledge of
the falsity of such facts, including the amount of prize money it intended to pay Challenge runners up, with the intent of misleading
(6) a resulting injury proximately caused by the reliance.
Williams v. Aetna Fin. Co.
(1998), 83 Ohio St.3d 464, 475, 700 N.E.2d
859;
Gaines v. Preterm-Cleveland, Inc.
(1987), 33 Ohio St.3d 54, 55, 514 N.E.2d 709.
{25} Additionally, a claim of fraud cannot be predicated upon promises or representations relating to future actions or conduct.
Hancock v. Longo
(Oct. 14, 1999), Franklin App. No. 98AP-1518. “Representations concerning what will occur in the future are
considered to be predictions and not fraudulent misrepresentations.”
Assoc. for Responsible Development v. Fieldstone Ltd. Part-
FN6. We note that Englert’s brief is not entirely clear “how” she was taken advantage of by Nutritional Sciences.
{30} Citing to no specific subsection of R.C. 1345.02, Englert appears to rely generally upon that statute’s subsection, which pro-
(1) That the subject of a consumer transaction has sponsorship, approval, performance characteristics, accessories, uses, or
benefits that it does not have;
(2) That the subject of a consumer transaction is of a particular standard, quality, grade, style, prescription, or model, if it is not;
(4) That the subject of a consumer transaction is available to the consumer for a reason that does not exist;
(5) That the subject of a consumer transaction has been supplied in accordance with a previous representation, if it has not, ex-
(6) That the subject of a consumer transaction will be supplied in greater quantity than the supplier intends;
(7) That replacement or repair is needed, if it is not;
(8) That a specific price advantage exists, if it does not;
(9) That the supplier has a sponsorship, approval, or affiliation that the supplier does not have;
(10) That a consumer transaction involves or does not involve a warranty, a disclaimer of warranties or other rights, remedies,
or obligations if the representation is false.
(1) Whether the supplier has knowingly taken advantage of the inability of the consumer reasonably to protect the consumer’s
interests because of the consumer’s physical or mental infirmities, ignorance, illiteracy, or inability to understand the language of
an agreement;
{31} Assuming without deciding that the facts of this case fall within the purview of Chapter R.C. 1345,FN7 we do not find that Nutri-
FN7. Englert purchased nutritional supplements from Nutritional Sciences and she received its product; she is not claim-
ing that any representations made in relation to the actual sale of those products violated the OSCPA. Because Englert
purchased those products, she was eligible to enter the contest, which is the genesis of her complaint. To enter the con-
test, Englert did not pay an additional fee, nor was she required to enter the contest. The contest’s judges selected the
winners based on body transformation. Although to compete, Englert was required to purchase Nutritional Sciences’
(3) Been selected, or is eligible, to win a prize or receive anything of value
unless the supplier clearly and conspicuously dis-
closes to the consumer any and all conditions
necessary to win the prize or receive anything of value.
2741.02, nor can it be liable to Englert for invasion of privacy because she gave Nutritional Sciences her consent to use her name
and likeness when she entered the contest. This court again reiterates the fact that we appreciate Englert’s disappointment, but the