Green v. Fidelity-Phenix Fire Insurance

64 S.E.2d 162 (1951) 233 N.C. 321

GREEN et al.
v.
FIDELITY-PHENIX FIRE INS. CO.

No. 161.

Supreme Court of North Carolina.

March 21, 1951.

W. Y. Wilkins, Jr., Tryon, for plaintiffs, appellants.

M. R. McCown, Tryon, and J. Lee Lavender, Old Fort, for defendant, appellee.

ERVIN, Justice.

The first appeal raises these questions:

1. Is the plaintiff Gosnell, the insured and mortgagor, bound by the award of the appraisers?

2. Is the plaintiff Green, the mortgagee, bound by it?

In deciding these questions, we must assume that the allegations of fact in the complaint are true. This is so because the judgment was entered on the pleadings pursuant to the motion of the defendant. Raleigh v. Fisher, 232 N.C. 629, 61 S.E.2d 897.

The complaint alleges these things concerning the award: That Gosnell, the insured and mortgagor, and the insurance company were not able to agree upon the amount of the loss; that they submitted their differences in this respect to appraisal or arbitration; that an appraisal or arbitration proceeding was had; that the appraisers made an award in writing fixing the amount of the loss; and that the appraisal or arbitration proceeding was had without the knowledge or consent of Green, the mortgagee. There is no allegation of any fraud or collusion.

Inasmuch as the complaint confesses that the plaintiff Gosnell was a party to the appraisal or arbitration proceeding, the award of the appraisers is presumed to be valid as to him, and the judgment on the pleadings must be upheld as to him unless it can be said that the complaint discloses circumstances entitling him to have the award set aside. Young v. New York Underwriters Insurance Company, 207 N.C. 188, 176 S.E. 271; Farmer v. Town of Wilson, 202 N.C. 775, 164 S.E. 356; Hemphill v. Gaither, 180 N.C. 604, 105 S.E. 183.

The only circumstance urged by the complaint for the impeachment of the award is that it was made in an appraisal or arbitration proceeding had between Gosnell and the insurance company without the knowledge or consent of Green. Gosnell cannot attack the award on this ground. His attempt to do so offends the plain principle of justice embodied in the ancient maxim nemo contra factum suum venire potest, meaning nobody can come in against his own deed.

This brings us to the question whether Green, the mortgagee, is bound by the appraisal or arbitration proceeding had between Gosnell, the mortgagor, and the insurance company without his knowledge or consent. The answer to this question is to be found in the language employed by the parties to express their agreement.

Clauses are frequently inserted in property insurance policies to protect a mortgagee's interest against loss from the causes insured against. These clauses are mainly of two kinds, to-wit: (1) The standard or union mortgage clause, which stipulates, in substance, that the interest of the mortgagee in the proceeds of the policy shall not be invalidated by any act or neglect of the mortgagor; and (2) the open or simple loss-payable clause, which merely provides that the loss, if any, shall be payable to the mortgagee, as his interest may appear. 29 Am.Jur., Insurance, §§ 552, 553.

It is the accepted position in North Carolina and most other states that when the standard or union mortgage clause is attached to or inserted in a policy insuring property against loss, it operates as a distinct and independent contract between the insurance company and the mortgagee, effecting a separate insurance of the mortgage interest. Stockton v. Atlantic Fire Insurance Co., 207 N.C. 43, 175 S.E. 695; Mahler v. Milwaukee, Mechanics' Insurance Co., 205 N.C. 692, 172 S.E. 204; Bennett v. Provident Fire Insurance Co., 198 N.C. 174, 151 S.E. 98, 72 A.L.R. 275; Wayne Nat. Bank v. National Bank of La Grange, 197 N.C. 68, 147 S.E. 691; Federal Land Bank v. Atlas Assurance Co., 188 N. C. 747, 125 S.E. 631; Federal Land Bank v. Globe & Rutgers Fire Ins. Co., 187 N.C. 97, 121 S.E. 37; Annotation: 124 A.L.R. 1034. Under this interpretation, a mortgagee entitled to share in the proceeds of an insurance policy under a standard or union mortgage clause is not bound by an adjustment of the loss, whether by arbitration or agreement, made by the insurance company and the mortgagor without his knowledge or consent. Reeder v. Twin City F. Ins. Co., D.C., 5 F. Supp. 805; Scottish Union & Nat. Ins. Co. v. Field, 18 Colo. App. 68, 70 P. 149; Collinsville Sav. Soc. v. Boston Ins. Co., 77 Conn. 676, 60 A. 647, 69 L.R.A. 924; Hartford Fire Ins. Co. v. Olcott, 97 Ill. 439, 459; McDowell v. St. Paul Fire & Marine Ins. Co., 207 N.Y. 482, 101 N.E. 457; Beaver Falls Bldg. & Loan Ass'n v. Allemania Fire Ins. Co., 305 Pa. 290, 157 A. 616; Superior Fire Ins. Co. v. Leal, Tex.Civ.App., 73 S.W.2d 584.

These authorities are not decisive of the present controversy, however, for the plaintiff Green claims under an open or simple loss-payable clause. Diligent research fails to reveal any North Carolina case passing upon the precise question whether a mortgagee protected by such clause is bound by an appraisal or arbitration proceeding between the mortgagor and the insurance company, where he is afforded no opportunity to participate in the proceeding. The decisions in other states are in irreconcilable conflict. Annotations: 111 A.L.R. 697; 38 A.L.R. 383; 25 L.R.A. (N.S.) 741; 19 L.R.A. 321; 18 Ann.Cas. 271.

Nevertheless, the cases in this State and the better considered cases elsewhere construing the open or simple losspayable clause point unerringly to the conclusion which must be reached if due heed is accorded to the language employed by the parties to express their agreement. These cases hold that when an open or simple loss-payable clause is attached to or inserted in a policy insuring property against loss, it does not create a new or original contract between the insurance Company and the mortgagee effecting a separate insurance of the mortgage interest, or abrogate the provisions of the policy placing the insurance on the property of the mortgagor as owner. Such clause merely makes the mortgagee an appointee of the insurance fund, entitling him to receive so much of any sum that may become due to the mortgagor under the policy as does not exceed his interest as mortgagee, and nothing more. The rights of the mortgagee under the clause are wholly derivative, and cannot exceed those of the mortgagor. Welch v. Sun Underwriters Insurance Company, 196 N.C. 546, 146 S.E. 216; Roper v. National Fire Insurance Cos., 161 N.C. 151, 76 S.E. 869; Annotation: 124 A.L.R. 1034.

Since the rights of the mortgagee under the open or simple loss-payable clause are dependent entirely upon those of the mortgagor, it necessarily follows that a mortgagee claiming under such clause is bound by an appraisal or arbitration had in good faith between the mortgagor and the insurance company, even though he was not a party to and had no notice of the proceeding. This conclusion finds implicit support in Everhart v. Atlantic Fire Insurance Company, 194 N.C. 494, 140 S.E. 78, where it is expressly held that a mortgagee claiming under an open or simple loss-payable clause is bound by an agreement between the mortgagor and the insurance company fixing the amount of the loss, even though he was not a party to the agreement. Moreover, our conclusion has explicit support in well considered cases in other jurisdictions. See Collinsville Sav. Soc. v. Boston Ins. Co., supra, and Chandos v. American Fire Ins. Co., 84 Wis. 184, 54 N.W. 390, 19 L.R.A. 321.

We are not compelled, however, to rest our decision solely upon this line of reasoning or upon these authorities. The policy named Gosnell, the mortgagor, as the insured, and provided in specific terms that the amount of any loss should be determined by appraisers appointed by the insured and the insurance company in the event they should fail to agree upon the amount of the loss. The complaint shows that the amount of the loss has been established by an award of appraisers selected by the very persons designated for that purpose by the policy itself. As there was no suggestion in any portion of the policy that any mortgagee was to be notified of any appraisal or arbitration proceeding, the award of the appraisers is necessarily binding upon Green, although it was made without notice to him. Deruy Motor Co. v. Insurance Co. of North America, 146 Kan. 233, 69 P.2d 677, 111 A.L.R. 692; Officer v. American Eagle Fire Ins. Co., 175 La. 581, 143 So. 500; Dragon v. Automobile Ins. Co., 265 Mass. 440, 164 N.E. 383; Orenstein v. New Jersey Ins. Co., 131 S.C. 500, 127 S.E. 570.

The plaintiff Green argues with much eloquence that he ought to have the right to participate in the adjustment of the loss for his own protection. The answer to this argument is simply this: It is otherwise "nominated in the bond." The law can not create contract rights and relations for the protection of men who have failed to protect themselves.

In considering the second appeal, we by-pass without discussion or decision the intriguing, but somewhat disconcerting, problem of whether a motion for vacation of a judgment and a new trial for newly discovered evidence will lie at all in a case where the judgment was rendered upon the pleadings and no evidence whatever was introduced. Be that as it may, the plaintiffs can not be heard to complain of the refusal of Judge Rudisill to grant their motion. If he had ruled thereon in their favor, his ruling would have been without legal force, for their prior appeal from the judgment on the pleadings had taken the case out of the jurisdiction of the Superior Court. Bailey v. McPherson, N. C., 63 S.E.2d 559; Veazey v. City of Durham, 231 N.C. 357, 57 S.E.2d 377; Lawrence v. Lawrence, 226 N.C. 221, 37 S.E.2d 496. Even apart from these considerations, Judge Rudisill had no power on the present record to grant the motion of the plaintiffs to vacate the judgment for newly discovered evidence after the expiration of the term in which the judgment was rendered. Crow v. McCullen, 220 N.C. 306, 17 S.E.2d 107. That term ended when Judge Rudisill finally left the bench. McIntosh: North Carolina Practice and Procedure in Civil Cases, § 42. Moreover, Judge Rudisill could not have sustained the plaintiffs' motion even if he had had jurisdiction to entertain it. The plaintiffs did not bring themselves within the rules permitting courts to vacate judgments and grant new trials for newly discovered evidence. Ibid., section 611. The alleged newly discovered evidence was not competent, material, or relevant under the pleadings. Indeed, it was not even newly discovered, for it was necessarily known to the plaintiffs when the action was brought and the judgment rendered. 49 C. J.S., Judgments, § 273.

For the reasons given, the judgment on the pleadings is affirmed.