Fire Association v. Ward , 130 W. Va. 200 ( 1947 )

I cannot concur in the decision of the majority in this case. Its basis is a theory of equity upon which an equitable subrogation in favor of the plaintiff is supposed to rest; a subrogation contract, to which the owners of the property, against whom a lien is sought to be decreed, were not parties; and upon an alleged assignment of a mortgage debt, which, in my opinion, had been liquidated under the contract between the original parties thereto, and which, therefore, did not exist at the date of the assignment.

The situation presented is this: Evaline C. Ward, one of the defendants, mortgaged her farm, to secure a loan from the Federal Land Bank of Baltimore. She was required to insure the improvements on the mortgaged property against loss by fire, and to keep the same so insured while the loan remained unpaid. She sold and conveyed her farm to Wayne Stalnaker, he assuming the payment of the mortgage loan, and agreeing to provide life maintenance for Evaline C. Ward and her husband, to secure which undertaking, on the part of Stalnaker, a vendor's lien was retained upon the face of said conveyance. Subsequent to this conveyance, the land bank secured a renewal of said insurance in the name of Evaline C. Ward, instead of the then owner, Stalnaker. While the record does not clearly show who paid the premium on this renewal, I think it is fair to assume that the same was paid by the land bank, and added to the mortgage debt, so that Stalnaker paid it in the final settlement of the mortgage debt. This renewal, under the terms of the policy, was void as to Ward, but effective as to the land bank; and when loss occurred there was paid to the land bank by the insurance company, the sum of $831.90, which was applied as a credit on the mortgage debt, and, in my opinion, operated to liquidate that debt, to the extent of the payment so made. Notwithstanding this partial liquidation, the land bank executed what is termed a subrogation receipt, in favor of the insurance company, and later attempted to assign $831.90 of its supposed debt to the insurance company, and on that assignment, together with the subrogation agreement, this suit is based.

When the insurance company renewed the insurance policy on the property aforesaid in the name of Ward, it issued what was, in effect, a void policy so far as Ward was concerned. But Ward and the land bank, each having an insurable interest in said property by reason of the vendor's lien and the mortgage aforesaid, the policy, as a whole, was probably not entirely void from the beginning. An inspection of the records of Randolph County would have disclosed that the ownership of the insured property was not vested in Ward at the time of the renewal, but the insurance company may not have had actual notice, or even be charged with constructive notice of said transfer of title. On the other hand, it appears from the record that Stalnaker, the then owner of the insured property, had no notice of the renewal of the policy, and for his own protection took out insurance on the same property with another company. The policy so issued, and for which the insurance company was compensated by payment of premiums, protected, in a technical sense, only the land bank; but practically, it inured to the benefit of Stalnaker, to the extent of the amount paid following the loss of the insured property, by reducing the mortgage debt which he had assumed. That protection, however, will be entirely lost if, in turn, the insurance company shall still enforce the mortgage against the land to the extent of said payment, the effect of which will be to place the burden upon Stalnaker or his grantee.

The asserted justification for upholding plaintiff's claim is the subrogation agreement contained in the renewal policy, mentioned in the majority opinion, and upheld by this Court in the case of Heldreth v. Federal Land Bank of Baltimore, 111 W. Va. 602,163 S.E. 50; but it must be remembered that in theHeldreth case, the insured, after the issuance of his policy, took out additional insurance, which invalidated his policy, and when loss occurred the insurance company, as in this case, was, notwithstanding the invalidity of the policy as to the insured, liable to a mortgagee; and having paid a certain sum of money was held to be entitled to subrogation as against the insured, or the property covered by the mortgage. In that case, the subrogation agreement was a part of the contract between the insurer and the insured; and the insured having violated the contract, the enforcement of the penalties therefor against him was justified. In the case at bar, there was no contract between the insurance company and Stalnaker, the owner of the property insured, and we think it can be said that there could not have been a contract between the insurance company and Ward, because Ward had no knowledge of the renewal policy, did not accept it, and, therefore, was not bound by its terms.

It may be, as held in the majority opinion, that the renewal policy amounted to a separate and independent agreement between the land bank and the insurance company, under which the insurance company was liable only to the land bank; but, in my opinion, that fact does not furnish a sufficient basis forex parte action on the part of the insurance company and the land bank, the effect of which was to impose upon the person who had assumed the payment of the mortgage debt, but who was not a party to the insurance contract, the burden of the loss which was insured against. That is what will happen in the event plaintiff prevails in this suit. In my opinion, when the insurance company settled the loss aforesaid with the land bank, the mortgage debt was reduced to the extent of $831.90, and there did not arise therefrom, in favor of the insurance company, either a legal or equitable right to an assignment of, and the collection of that amount by enforcing a lien against property covered by the mortgage.

The insurance company cannot, in equity, complain that under its policy contract it was bound to the land bank, notwithstanding the invalidity of the policy issued to Ward; because it was in the business of insuring property against loss by fire, and took the normal risk involved. In meeting its obligation to the land bank, it is not, in my opinion, entitled to be reimbursed for its outlay and loss, as against a person not a party to the agreement under which it seeks such reimbursement. Presumably, the loss of the improvements on the mortgaged property by fire lessened, if not impaired, the land bank's security for its loan, and that impairment was made good when the insurance company paid the amount aforesaid in settlement of its policy obligation. That was the object of the policy, and the insurance company, in meeting the loss, did nothing more than comply with its legal obligation. It cannot transfer its obligation to a third party against his will, under a supposed contract to which he was not a party. Had Ward been the owner of the property at the time of the fire, and the policy had become invalid by reason of some act on her part, which might have been a subsequent conveyance of the insured property, the subrogation clause would have been binding under the decision in the Heldreth case; but I do not believe it should be held binding to the extent that it enabled the land bank and the insurance company, by ex parte action on their parts, to impose, in effect, a liability against a third party not a party to the insurance agreement. Equity deals with realities, and it is obvious, of course, that the effect of the majority opinion is to impose this burden on Stalnaker or his grantee.

I would affirm the ruling of the Circuit Court of Randolph County.