Barry Brewer v. Wright , 168 Miss. 216 ( 1933 )

I concur in the result of the holding in the principal opinion, and I think the rights of the parties are fixed by section 5185 of the Code of 1930. This mortgage clause provision is one enacted by the Legislature, and is not to be considered as a contract drawn by the insurer, the insured, or the mortgagee. It is to be given a fair and reasonable interpretation, without reference to the usual mortgage clause on the policy under which many of the cases relied upon by the appellee were decided, construing the provisions of the contract most strongly against the insurer. There is no question of the power of the Legislature to enact such a provision as is contained in section 5185 of the Code. In Hardware Dealers Mutual Fire Ins. Co. v. Glidden Co.,284 U.S. 151-160, 52 S.Ct. 69, 70, 76 L.Ed. 214, it was held that a statute requiring the insurer in a fire insurance policy showing a provision fixing the amount of loss by arbitrators whose decision "is conclusive upon the parties, unless grossly excessive or inadequate, or procured by fraud," does not infringe upon the due process clauses of the Fourteenth Amendment. It was also held that: "The right to make contracts embraced in the concept of liberty guaranteed by the Fourteenth Amendment is not unlimited. Liberty implies only freedom from arbitrary restraint, not immunity from reasonable regulations and prohibitions imposed in the interests of the community."

This power to regulate contracts is broad and comprehensive, and relates to all persons and corporations within reasonable limitations; but the power is more extensive in the case of a public service corporation, or a corporation which is affected by a public interest. German Alliance Ins. Co. v. Hale,219 U.S. 307, 31 S.Ct. 246, 55 L.Ed. 229; Hancock Mut. Ins. Co. v. Warren,181 U.S. 73, 21 S.Ct. 535, 45 L.Ed. 755; Orient Ins. Co. v. Daggs, 172 U.S. 557, 19 S.Ct. 281, 43 L.Ed. 552; Dent v. West Virginia, 129 U.S. 114, 9 S.Ct. 231, 32 L.Ed. 623; Noble State Bank v. Haskell, 219 U.S. 104, 31 S.Ct. 186, 55 L.Ed. 112, 32 L.R.A. (N.S.) 1062, Ann. Cas. 1912A, 487; Shallenberger v. First State Bank, 219 U.S. 114, 31 S.Ct. 189, 55 L.Ed. 117.

See, also, cases digested in U.S. Dig. (L.C.P. Co.) "Constitutional Law," sections 276, 401-421, 639-703.

Section 5185 of the Code of 1930, above referred to, reads as follows:

"Each fire insurance policy on buildings taken out by a mortgagor or grantor in a deed of trust shall have attached or shall contain substantially the following mortgagee clause, viz.:

"Loss or damage, if any, under this policy, shall be payable to (here insert name of the party), as ____ 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 relating to the property, nor by any change in the title or ownership of the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy, and in case the mortgagor or owner shall neglect to pay any premium due under this policy the mortgagee (or trustee) shall, on demand, pay the same; provided, also that the mortgagee (or trustee) shall notify this company of any change of ownership or occupancy or increase of hazard which shall come to the knowledge of said mortgagee (or trustee), and, unless permitted by this policy, it shall be noted thereon and the mortgagee (or trustee) shall on demand, pay the premium for such increased hazard for the term of the use thereof; otherwise this policy shall be null and void. This company reserves the right to cancel this policy at any time as provided by its terms, but in such case this policy shall continue in force for the benefit only of the mortgagee (or trustee) for ten days after notice to the mortgagee (or trustee) of such cancellation and shall then cease and this company shall have the right on like notice to cancel this agreement. In case of any other insurance upon the within described property this company shall not be liable under this policy for a greater proportion of any loss or damage sustained than the sum hereby insured bears to the whole amount of insurance on said property, issued to or held by any party or parties having an insurable interest therein, whether as owner, mortgagee or otherwise. Whenever this company shall pay the mortgagee (or trustee) any sum for loss or damage under this policy and shall claim that as to the mortgagor or owner, no liability therefor existed, this company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made, under all security held as collateral to the mortgage debt, or may, at its option, pay to the mortgagee (or trustee) the whole principal due or to grow due on the mortgage with interest, and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities; but no subrogation shall impair the right of the mortgagee (or trustee) to recover the full amount of ____ claim. Provided, nothing in the foregoing prescribed form shall be construed to in any manner modify the provisions of section 5183."

In Bacot v. Phoenix Ins. Co., 96 Miss. 223, 50 So. 729, 25 L.R.A. (N.S.) 1226, Ann. Cas. 1912B, 262, it was held that the mortgage clause above set out has the effect of making an independent contract in favor of the mortgagee, and that this contract is not impaired by any act or neglect of the mortgagor in reference to the insurance, and that although the policy might be void as to the mortgagor on account of misrepresentation of his interest in the property, it was valid as to the mortgagee; that the statute automatically writes itself into every contract where the insurance company allows a mortgage clause to be inserted, and makes an independent contract between the mortgagee and the insurance company, in no way dependent upon the original policy between the owner and the insurer. This ruling has frequently been followed in this state. Scottish Union Nat. Ins. Co. v. Warren Gee Lbr. Co.,118 Miss. 740, 80 So. 9; Refuge Cotton Oil Co. v. Twin City Fire Ins. Co., 152 Miss. 522, 120 So. 214.

In other words, the statute writes the terms of the contract in this respect into every fire insurance policy on buildings taken out by a mortgagor or grantor in a deed of trust. The statute is more than a mere contract; it announces a public policy, as well as provides the terms of a contract in regard to the mortgage clause, in every deed of trust or mortgage taken out on buildings in this state. The purpose of the statute is wholesome, and tends to preserve the property of the state. It removes the temptation to get insurance upon property greater than the interest of the owner of the property insured; and it also tends to prevent having insurance on the same property in separate policies, payable to separate persons, having separate interests in the property. The statute is highly favorable to the mortgagee. It makes his insurance on the mortgaged property valid, regardless of the neglect of the mortgagor or owner, or by change of ownership or foreclosure proceedings, or by occupation of the premises for purposes more hazardous than are permitted by the policy. The mortgagee is not put to the trouble or risk of seeing that the mortgagor or owner has truly stated the facts, and has kept up the premiums, or has continued as the owner of the property. As a compensation for this benefit, highly advantageous to the mortgagee, the statute has imposed on the mortgagee the duty of paying the premiums if the mortgagor shall not pay them, on a demand for such payment by the insurance company, or those who stand in its right. It also imposes upon the mortgagee, or trustee, the duty to notify the company of any change of ownership or occupancy, or increased hazard, which shall come to the knowledge of the mortgagee or trustee, where the risk is not authorized by the terms of the policy, and the mortgagee or trustee, on demand, shall pay increased premiums for such increased hazard, if any, involved in the change of ownership, or change of conditions affecting the risk. Under the statute, every person taking a mortgage on the character of property covered by the statute, takes it subject to the terms of the statute; he takes the benefit with the burdens, as a part of his right to such security, and if the policy is issued, his right or interest in the property will be protected by the statute.

In the case before us it is not necessary that the deed of trust held by Wright should have contained a requirement that the mortgagee procure insurance to protect his interest. Such provisions are very common, and are usually employed in deeds of trust on lands or buildings. In the present case the policies were placed with the appellee, and he knew, of course, or was bound to know at his peril, the terms of the statute; having the policies in his possession, it was his own fault if he did not know of the mortgage clause, or if he did not know of the statute automatically writing the mortgage clause into the policy. He took and kept the policies without inquiring as to whether the premiums had been paid; and is now attempting to secure the benefit of the statute, without taking with the benefit, the burden imposed thereby upon him. This he clearly cannot do. Whenever a mortgagee takes a mortgage on a building, knowing that there is an insurance policy in favor of the owner or mortgagor, he is bound to take steps to see that the owner pays the insurance, or that the policies are canceled, if he desires to escape the burdens imposed by the statute. It would be wholly unfair to permit him to accept a part of the statute which gives him a right, and, at the same time, to repudiate the statutory obligations imposed upon him by that statute.

I think our statute requires a different rule of construction to be applied in construing the insurance policy than was held in the authorities relied upon by the appellee, while the majority of the cases that construe the mortgage clause contain the word "provided," in the New York standard policy mortgage clause. Coykendall v. Blackmer, 161 App. Div. 11, 146 N YS. 631; Home Ins. Co. v. Union Trust Co., 40 R.I. 367,100 A. 1010, L.R.A. 1917F, 375; Trust Co. of St. Louis County v. Ins. Co., 201 Mo. App. 223, 210 S.W. 98; Ormsby v. Phoenix Ins. Co.,5 S.D. 72, 58 N.W. 301; Johnson, Sansom Co. v. Fort Worth State Bank (Tex. Civ. App.), 244 S.W. 657; Nat. Fire Ins. Co. v. Emerson, 22 B.C. 349.

These cases interpret the terms against the insurance companies, on the theory that the companies wrote them, and that the terms were ambiguous; and that the ambiguities would be construed against the insurer, and in favor of the insured. These cases, most of them at least, also hold that the contract in favor of the mortgagee is separable, and independent of that of the mortgagor or owner. Just how they can arrive at a conclusion that the mortgagee can accept the benefit of the insurance given him by the clause, without also assuming the burdens imposed thereby, is not clear to my mind. In considering the decisions of other states, this court should not regard them as binding, but merely as persuasive; they are only entitled to the respect that their reasoning commands. None of these cases seems to plant itself upon a statute. It seems to me that the ambiguities referred to by these courts are rather farfetched and involved; and that they created ambiguities by construction, and then construed the policies against the insurers. To my mind, the sounder decisions, supported by better legal reasoning, are the following, which hold to the contrary: St. Paul F. M. Ins. Co. v. Upton, 2 N.D. 229, 50 N.W. 702; and Boston Safe Deposit Trust Co. v. Thomas, 59 Kan. 470, 53 P. 472. We should not follow a line of cases merely because more states decided one way than another; but we should carefully consider the reasoning and arguments in support of the conclusions reached, and accept or reject them, according to their soundness in legal reasoning.

The appellee in this case is seeking the benefit of the insurance on losses sustained on some of the policies held by him, while repudiating the burden put upon him by the statutory mortgage clause. In my opinion, the obligation of the mortgagee to pay the premiums if the mortgagor fails to do so exists from the issuance of the insurance policies. They are payable on demand; in other words, no suit can be brought until demand is first made, and opportunity to pay the premiums, or to cause the mortgagor to pay them, is given the mortgagee; and where a policy is allowed to continue in force, the mortgagee must pay the earned premiums up to the time of demand, when the demand is made, although he may desire to cancel them as to the future.