United States National Bank of Oregon, a National Banking Association v. American Home Assurance Company v. Charles L. Shepherd, Intervenor-Appellee

This is a diversity case in which American Home Assurance Company (American Home) appeals from the judgment of the district court denying it a right of subrogation against the principal insured, Charles L. Shepherd. We affirm.

Shepherd, the appellee, purchased an aircraft by giving his promissory note, secured by a chattel mortgage on the airplane. The seller assigned the note and mortgage to the United States National Bank of Oregon (the bank). American Home issued a policy insuring Shepherd against loss of or damage to the airplane. The policy contained an exclusionary clause which provided that the policy would be voided as to Shepherd if the loss or damage were to be caused by his misconduct or occurred while the airplane was being operated by an unlicensed pilot.

Pursuant to a requirement by the bank as a condition to its accepting assignment of the note, the policy also contained an endorsement that provided for payment to the bank of the amount of its lien, irrespective of whether the policy was invalidated as to Shepherd because of his misconduct or the participation of an unlicensed pilot.

During the term of the policy, the airplane was destroyed in a crash.…