Johnson v. Allstate Insurance Co.

Sherry A. Murdock Johnson (plaintiff) and Jack D. Murdock (defendant) were married and owned a home that was subject to a note secured by a mortgage in favor of Union National Bank of Arkansas (the bank) (defendant). Through Sherry and Jack’s subsequent divorce proceedings, Jack received the home via a quitclaim deed executed by Sherry, and Jack was ordered to pay the note and hold Sherry harmless on the note. Jack subsequently filed for bankruptcy and his obligations, including his obligation to Sherry to pay the note and hold her harmless, were discharged. Sherry obtained an insurance policy on the home through Allstate Insurance Company (Allstate) (defendant) to shield herself from liability on the note and mortgage. The policy was limited to cover only Sherry’s insurable interest in the home. The home was subsequently destroyed by fire, and Allstate paid the bank the full amount due on the note and mortgage. Allstate told Sherry that Sherry’s insurable interest was limited to the amount due on the note and mortgage and therefore that Allstate would not pay Sherry any additional funds. Sherry moved for summary judgment, arguing that she maintained a security interest in the home due to Jack’s failure to pay the note and hold Sherry harmless and therefore that Allstate was estopped from denying Sherry payment of the excess of the insurance proceeds above the amount paid to the bank. The trial court overruled Sherry’s motion and held that her insurable interest was limited to the amount of the note and mortgage. Sherry appealed.