The purchasers of a boat financed the acquisition with a substantial bank loan. The bank was identified as a loss payee in a Lenders Loss Payable endorsement applicable to Hull insurance secured by the buyers. When the boat was destroyed in a hurricane in Mexican territorial waters more than 50 miles from the United States coastline, the insurer denied coverage on the basis of the policy provision identified as “When and Where the Policy Applies.” The specified coverage area included coastal waters of the continental United States, which were defined as “ocean waters which extend 50 statute miles from the coastline of the continental United States of America….” The loss had occurred beyond that distance.

The bank brought a lawsuit against the insurer to recover under the policy to the extent of its interest in the boat. Acknowledging the suspension of insurance with respect to the purchasers, it asserted that the protection provided the lender under the Lenders Loss Payable endorsement was not affected by the territorial limitation. The pertinent part of the endorsement stated that, as to the interest of the lender only, the insurance shall not be suspended by “location of the subject of the insurance….” The trial court ruled in favor of the bank and the insurance company appealed.

The insurer argued that an endorsement of the “loss payable” type does not extend policy coverage to risks otherwise not covered. It said that the loss in Mexican waters was clearly excluded. The bank contended that the quoted language of the endorsement effectively prevented its loss of protection.

The appeal court disagreed with the insurer’s contention that “the endorsement cannot create coverage for the plaintiff that is not within the coverage of the underlying policy.” It said that an endorsement can be used to affect any terms of a policy, including coverage, and that the endorsement controls where there is conflict between the base policy and the endorsement.

The judgment of the trial court in favor of the lending institution and against the insurance company was affirmed.

First Interstate Bank Of Oregon, Respondent V. Allstate Insurance Company, Appellant. Oregon Court of Appeals. No. CA A 31860. June 5, 1985. CCH 1985-86 Fire and Casualty Cases.