Brannon v. Boatmen's National Bank , 70 O.B.A.J. 1256 ( 1998 )

REIF, J.

¶ 1 This appeal concerns the insurance coverage that a seller/seeured party can obtain when their buyer/debtor does not provide insurance as set forth in the financing agreement for the buyer/ debtor’s purchase of a motor vehicle. The two plaintiffs in this case are buyer/debtors whose financing agreements for the purchase of motor vehicles were assigned to defendant Boatmen’s Bank by the original sellers.

¶ 2 The financing agreements in question require the buyer to “insure Collateral with companies acceptable to Seller/Secured Party against such casualties and in such amounts as prudent and adequate to protect Seller/Secured Party or as Seller/Secured Party shall require.” The financing agreements further provide that: “At its option ... Seller/Secured Party may ... pay for ... insurance [and that] Buyer agrees promptly to reimburse Seller/Secured Party ... and until such reimbursement the amounts of such expenditures shall be ... secured by this Security Agreement and shall be subject to a FINANCE CHARGE at a rate not exceeding the ANNUAL PERCENTAGE RATE provided herein.”

¶ 3 Relying on these provisions, Boatmen’s Bank purchased insurance, because plaintiff-buyer Brannon defaulted on her insurance obligation two months into the two-year loan period, while plaintiff-buyer Thomas defaulted on his insurance obligation four months into the one-year loan period. .

¶4 Plaintiff-buyers contend that Boatmen’s Bank could' only purchase “casualty insurance” under these provisions and that the insurance notices they received from Boatmen’s Bank show insurance other than “casualty insurance” was purchased.¹ Plaintiffs contend that the purchase of coverage other than casualty coverage resulted in an excessive charge, a breach of contract, and a violation of various business practice statutes. Boatmen’s Bank admits it purchased the coverages reflected in the notices, but maintains that it was not limited to purchasing “casualty insurance.” Boatmen’s Bank contends that it could purchase such insurance “as Seller/Secured Party shall require.” The trial court agreed with Boatmen’s Bank and dismissed plaintiffs’ suit. Upon review, we likewise agree with Boatmen’s Bank. We hold that the insurance purchased by Boatmen’s Bank did not breach the financing agreements, or violate any of the statutory provisions pled by plaintiff-buyers in their petition.

¶ 5 The financing agreements expressly reserve the right to the seller/secured party to purchase insurance as it shall require and at its option when the buyer/debtor does not insure the collateral. Pursuant to 14A O.S.1991 § 4-104(1), “a creditor may agree to provide insurance, and may contract for and receive a charge for insurance separate from and in addition to other charges [but] need not make a separate charge for insurance provided or required by him.” (Emphasis added.)

¶ 6 Pursuant to section 4-109, “[i]f a creditor requires insurance ... the debtor shall have the option of providing the required insurance.” (Emphasis added.) The notices that plaintiff-debtors admit receiving advised the plaintiff-debtors that they could purchase insurance from their own agent to replace the insurance purchased by Boatmen’s Bank.

¶ 7 Additionally, when the financing agreement contains covenants by the buyer to perform certain duties for insurance, and the seller pays for performance of the duties on behalf of the buyer, the seller may add the amounts paid to the debt. 14A O.S. 1991 § 2-208. As expressly concerns insurance, sub-section (1) further states that the secured party need only give buyer notice of “a brief description of the insurance paid for by the seller including the type and amount of coverages.” The foregoing statutes clearly support Boatmen’s Bank purchase of such insurance as it required. Significantly, 14A O.S.1991 § 4-301 does not restrict purchase of insurance to casualty insurance, but instead, merely places restrictions on any casualty insurance a creditor may purchase. The casualty insurance must cover “a substantial risk of loss of or damage to property related to the credit transaction, [be] reasonable in relation to the character and value of the property, [and have a term] reasonable in relation to the terms of credit.” It appears that plaintiff-buyers believe that the insurance in question violated section 4-301, because of (1) a zero deductible for any loss claimed by Boatmen’s Bank, (2) taking coverage for the purchase price of the insured vehicles, rather than the balance of the loans, and (3) taking coverage for the entire period of the loan, rather than the period of the loan remaining after securing the insurance.

¶8 In rejecting these contentions, we first note that without a zero deductible on any loss it may claim, a secured creditor like Boatmen’s Bank would not be fully protected. In addition, a zero deductible for the creditor leaves no deficiency in the effective coverage for which the debtor would otherwise bear the risk under section 4-302. Given the fact that both the financing agreements and the foregoing statutes liberally protect a secured creditor’s right to insure, we must conclude that a zero deductible is not an unreasonable term for the casualty coverage in question.

¶ 9 Next, use of the purchase price of the vehicles for coverage was clearly reasonable given the responsibility of Boatmen’s Bank to act as “attorney” for the buyer/debtors in obtaining insurance and making any claims for covered losses. Just as a zero deductible fully protected the interests of Boatmen’s Bank, use of the purchase price fully protected the interests of the buyer/debtors. Again, it ensures there will be no deficiency in the effective coverage for which the debtor would bear the risk under section 4-302. Use of the purchase price as a measure of coverage was “reasonable in relation to the character and value of the property insured.” 14A O.S.1991 § 4-301(1)(b).

¶ 10 Lastly, the fact that the “coverage period” coincides with the term of the loan and provided pre-issuance coverage was not unreasonable in relation to the terms of the credit. The secured party is entitled to insurance coverage for loss or damage to the collateral that may have occurred during any period that the plaintiff-buyers did not have insurance in effect including any pre-issuance period. Additionally, Boatmen’s Bank would be entitled to pre-issuance coverage for loss or damage that buyer’s insurance may have excluded, or that the buyer’s insurance was insufficient to cover, such as damage that was less than buyer’s deductible. Again, the fact that Boatmen’s Bank can secure coverage for pre-issuance loss or damage equally protects and benefits the buyer/debtors.

¶ 11 Although plaintiffs rely on provisions in the Uniform Consumer Credit Code for recovery of “excess charges,” and have alleged that the insurance in question constituted such excess charges, they have not pled any facts from which it can be determined that the cost of the insurance in question was “excessive” other than their contention that the insurance was “unauthorized.” As discussed previously, the insurance in question was not unauthorized, either by the financing agreements or by statute.

¶ 12 Section 4-107 expressly addresses the amount that a debtor can be charged when the secured creditor obtains insurance. The statute states, “if a creditor contracts for or receives a separate charge for insurance, the amount charged to the debtor for the insurance may not exceed the premium to be charged by the insurer, as computed at the time the charge to the debtor is determined, conforming to any rate filings required by law and made by the insurer with the Insurance Department.” In the instant case, the separate charge for insurance by Boatmen’s Bank was “the premium to be charged by the insurer.” The plaintiff-debtors did not allege that “the premium to be charged” failed to conform to the rate filings by the insurer herein. They also did not allege that “the insurance [was] prohibited under any statute, or rule thereunder, governing the business of insurance.” See 14A O.S.1991 § 4-104(1).

¶ 13 Plaintiff-buyers’ multiple causes of action and theories of recovery all spring from the premise that Boatmen’s Bank violated the Uniform Consumer Credit Code and breached the financing agreement. However, the exhibits attached to plaintiff-buyers’ petition reveal that Boatmen’s Bank acted in conformity with the Uniform Consumer Credit Code and the financing agreement. Proper performance of legal obligations under both the contract provisions and the specific statutory law that governs the insurance transactions in question legally and logically forecloses plaintiff-buyers’ derivative theories of fraud, deceptive trade practices, bad faith, and unfair trade practices under the consumer protection act.

¶ 14 Even the assumed truth of plaintiff-buyers’ allegation that Boatmen’s Bank was paid a “commission” for purchasing the insurance in question does not make the purchase of the insurance wrongful. Boatmen’s Bank was under no duty to disclose or share any financial incentives it received from taking its “force placed” insurance business to the insurer in question. Section 4-108(2) expressly provides that “the creditor [is not required] to account to the debtor for any portion of a separate charge for insurance because ... the creditor receives directly or indirectly under any policy of insurance a gain or advantage not prohibited by law.”

¶ 15 In essence, plaintiff-buyers complain about their secured creditor exercising a right given under both the financing agreement and statutory law. They downplay the fact that it was their failure to perform an obligation under the financing agreement that led to their secured creditor’s exercise of its right. They seek the recognition of various causes of action against the secured creditor for its exercise of contractual and statutory rights, despite receipt of notice that (1) the secured party was exercising its right, (2) the manner in which the secured party was exercising its right, and (3) the cost for the secured party to exercise its right. They were given opportunity to contest the secured party’s acts and to rectify their default. In view of the fact that plaintiffs were given both the right and opportunity to avoid the costs of the secured party exercising its insurance rights, we fail to see why their inaction should constitute a sufficient basis to judicially fashion further protections and remedies for them.

¶ 16 If Boatmen’s Bank did nothing wrong or actionable in purchasing the insurance from defendant-insurer T.B.A. of Oklahoma, Inc., it legally and logically follows that T.B.A. did nothing wrong or actionable vis-a-vis the plaintiff-debtors in selling the insurance in question to Boatmen’s Bank. The trial court did not err in granting the motions to dismiss of the defendants. In view of the plaintiff-debtors’ election to not amend and to stand on their petition, the judgment dismissing this cause as to both defendants — Boatmen’s National Bank of Oklahoma (and its successors) and T.B.A. of Oklahoma, Inc. — is AFFIRMED.

STUBBLEFIELD, P.J., concurs, and RAPP, J., dissents.

1 . One of plaintiffs' complaints about the insurance obtained by Boatmen’s Bank apparently concerns the "Conversion Coverage,” "Waiver of Repossession,” and "Past Due Payments Coverage.” However, these coverages are operative only in the event of a loss of the collateral. In addition, these coverages are not expressly prohibited by the Uniform Consumer Credit Code, and do not otherwise violate 14A O.S.1991 § 4-301 or § 4-106. Finally, any recovery under these provisions would partially benefit a debtor by fully protecting the debtor's equity in the collateral.