Katzin v. Fidelity & Guaranty Fire Corp. ( 1941 )

North, J.

The primary question presented on this appeal is stated in appellant’s brief as follows:

“Where fire insurer is induced to believe that a mortgage is outstanding on the premises and in ignorance of the fact of a foreclosure sale having been completed, issues its policy payable to the insured as fee owner and to the mortgagee as its interest appears, which policy is delivered to the mortgagee bank and retained by it with the knowledge and consent of the insured, in an action against the insurer, may the insured recover on the policy on the theory that he insured his equity of redemption only?”

The trial court, sitting without a jury, entered judgment for plaintiff. The defendant insurance company has appealed.

The policy in suit was a renewal of a former policy issued prior to the foreclosure proceedings. This renewal policy, on which plaintiff paid the premium, was issued by defendant’s agent. Evidently the agent in issuing this renewal relied upon information derived from the former policy. So far as the record discloses, he did not know that the mortgage on the insured property had been foreclosed. As a matter of fact, the mortgage sale and the execution of the sheriff’s deed antedated the renewal policy by substantially 28 days. There was no active fraud or misrepresentation by the insured; but it is a fair inference from the record he knew that the former policy contained a standard mortgage rider and that the renewal policy was delivered to the mortgagee.

The fire that damaged the insured property occurred on or about January 29, 1936. This was approximately eight and one-half months after the sheriff’s sale to the holder of the mortgage. The bank which had held the mortgage, acting through its receiver, repaired the property. This was done without any consultation with plaintiff; but he must have had full knowledge of the repairs because for the full period of redemption he continued to collect the rents from the tenants who occupied the insured building, a two-apartment dwelling. The defendant insurance company, evidently assuming it was liable for the fire loss to the bank under the mortgage rider, which provided for payment of loss to the bank as its interest might appear, paid the bank $1,202.80. But this payment was made after the insurance company had been notified in writing that plaintiff claimed he was entitled to the amount theretofore agreed upon between the insurer and the bank in adjustment of the loss.

This suit was started September 9, 1936. The period of redemption had expired May 9, 1936. At and after the date the policy was issued, plaintiff’s interest in the property was limited to the right to possess it or dispose of it subject to the foreclosure or to exercise his right of redemption. Plaintiff did not redeem.

The theory upon which plaintiff asserts right to recover is contained in the notice which he caused to be served on defendant. In part it reads:

“It appears that the mortgage interest of the First National Bank of Detroit, was discharged by sheriff’s sale, deed thereto having been executed on May 9, 1935, recorded May 11, 1935. This sale discharged the indebtedness of my client [plaintiff] to the bank, and terminated the bank’s interest as it appeared at the time of the execution of policy of insurance covering the property.

‘ ‘ Since the loss occurred after the foreclosure, my client’s interest in the policy of insurance is sole and undivided. * * * Any payment henceforth made to the bank without our consent will be made at your own risk.”

"While decision herein does not involve determination of whether defendant was legally bound to make payment to the bank of the amount of the fire loss, nonetheless we note the broad terms of the mortgage clause in the policy which plaintiff caused to be issued.

“Loss or damage, if any, under this policy, shall be payable to the First National Bank — Detroit, mortgagee (or trustee) as interest may appear, and this insurance, as to the interest of the mortgagee (or trustee) only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property, nor by any foreclosure or other proceedings or notice of sale re lating to the property, nor by any change in the title or ownership of the property.”

Concisely stated, plaintiff’s theory (adopted in substance by the trial judge) is, (1) that foreclosure sale and purchase by the bank terminated all of its rights under the mortgage clause of the insurance policy, and (2) after the foreclosure sale plaintiff’s “interest [as holder of the right of possession and of redemption] in the policy of insurance [was] sole and undivided.” The pertinent allegation in plaintiff’s declaration is that at the time of the fire loss “his ownership of the said policy of insurance was sole and distinct.”

Obviously in asserting right of recovery,' plaintiff fails to comprehend that such right depends upon his “unconditional and sole ownership” (subject to a mortgagee’s interest) of the insured property; not upon ownership of the “policy of insurance.” In this action at law, if plaintiff is to recover, he must do so under and in accordance with the terms of the insurance contract between himself and the defendant company. That contract contains the following:

“This entire policy shall be void, unless otherwise provided by agreement in writing added hereto: (a) if the interest of the insured be other than unconditional and sole ownership when loss or damage occurs; or (b) if the subject of insurance be a building on ground not owned by the insured in fee simple when the loss or damage occurs; or (c) if, with the knowledge of the insured foreclosure proceedings be commenced or notice given of sale of any property insured hereunder by reason of any mortgage or trust deed.”

Clearly the insurance contract covered plaintiff’s interest in the insured property only if (subject to the mortgage clause) it was “unconditional and sole ownership,” and if plaintiff at the time of the loss was the owner in fee simple of the land on which the insured building stood. Otherwise as to him the policy was “void.” It may be granted, as plaintiff’s brief asserts, that an equity of redemption is a-n insurable interest; but it is by no means an “unconditional” ownership. Instead it is a right conditioned on timely payment of the price paid at the foreclosure sale. At the time of the fire loss there was a breach of both conditions “(a)” and “(b)” above quoted, and in consequence thereof plaintiff cannot recover. It is pointed out in plaintiff’s brief that condition “(c)” above quoted was not breached because this renewal policy was issued after the foreclosure sale. Nonetheless condition “(c)” merits consideration because it quite conclusively discloses that this policy was not issued with the intent that it should insure a right of redemption, as plaintiff now asserts.

Notwithstanding plaintiff’s contention to the contrary, we fail to find in this record any admissions of liability by defendant which estop it from defending on the ground that at the time of the loss plaintiff was not (subject to the mortgage clause) the “unconditional and sole” owner of the insured property.

The judgment entered in the circuit court is reversed, with costs of both courts to appellant.

Sharpe, C. J., and Bushnell, Boyles, Chandler, McAllister, Wiest, and Butzel, JJ., concurred.