United States Fidelity and Guaranty Co. v. Reagan

122 S.E.2d 774 (1961) 256 N.C. 1

UNITED STATES FIDELITY AND GUARANTY COMPANY, a corporation,
v.
William C. REAGAN.

No. 666.

Supreme Court of North Carolina.

December 13, 1961.

Gwyn & Gwyn, by Julius J. Gwyn, Reidsville, for plaintiff, appellant.

Brown, Scurry, McMichael & Griffin, by Claude S. Scurry and Jule McMichael, Reidsville, for defendant, appellee.

PARKER, Justice.

It is a fixed rule of insurance law that an insurable interest on the part of the person taking out the policy is essential to the validity and enforceability of the insurance contract, whatever the subject matter of the policy, and that if no insurable interest exists, the contract is void. Trinity College v. Travelers' Ins. Co., 113 N.C. 244, 18 S.E. 175, 22 L.R.A. 291; Wharton v. Home Sec. Life Ins. Co., 206 N.C. 254, 173 S.E. 338; 29 Am.Jur., Insurance, § 433, where cases are cited to this effect from many jurisdictions. 44 C.J.S. Insurance § 175.

The fact that another person who has an insurable interest lends his consent to the transaction does not impart validity to a policy of insurance. 44 C.J.S. Insurance § 175, p. 869. See Trinity College v. Travelers' Ins. Co., supra.

It is a prerequisite to the validity of a policy insuring against loss or injury to an automobile by fire, theft, collision, or other causes, no less than in the case of any other type of insurance, that the person to whom it is issued have some interest in the automobile, inasmuch as some interest is essential to the validity of a policy of insurance, whatever its subject matter. Mowles v. Boston Ins. Co., 226 Mass. 426, 115 N.E. 666; Hirsch v. City of New York Ins. Co., 218 Mo.App. 673, 267 S.W. 51; Hessen v. Iowa Automobile Mut. Ins. Co., 195 Iowa 141, 190 N.W. 150, 30 A.L.R. 657; 6 Blashfield, Cyclopedia of Automobile Law and Practice, § 3501; 5A Am.Jur., Automobile Insurance, § 10.

Now there is little discussion in the cases as to the necessity of the existence of an insurable interest in the insured, but the question as to the nature and extent of the interest required in order to qualify as an insurable interest is still a matter of lively debate. This debate is conducted largely from the point of view of determining whether or not the interest of particular persons such as mortgagors, receivers, spouses, or landlords constitutes an insurable interest. Annotation 9 A.L.R.2d p. 183.

It is said in Warnock v. Davis, 104 U.S. 775, 26 L. Ed. 924, "It is not easy to define with precision what will in all cases constitute an insurable interest, so as to take the contract out of the class of wager policies."

"As a general rule, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction." 5A Am.Jur., Automobile Insurance, § 11.

This is said in 44 C.J.S. Insurance § 175, p. 870: "In general a person has an insurable interest in the subject matter insured where he has such a relation or connection with, or concern in, such subject matter that he will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. Great liberality is indulged in determining whether a person has anything at hazard in the subject matter of the insurance, and any interest which would be recognized by a court of law or equity is an insurable interest. Thus, the interest of insured may be personal or as a representative of the rights of others; and while neither legal nor equitable title is necessary, a person must have such a right or interest as the law will recognize and protect."

Fray v. National Fire Ins. Co., 341 Ill. 431, 173 N.E. 479, relied upon by defendant is clearly not in point. In that case a trustee acquired title to the insured property under a quit claim deed conveying the property for the benefit of creditors under a trust agreement. Transfers were absolute on their face, and there was no defeasance clause in either deed or bill of sale or instrument of trust which gave trustee absolute power, directed him to sell property and to apply same for benefit of grantor's creditors. In no event was grantor entitled to recover property. The trustee was held to have an insurable interest in the property.

Considering plaintiff's evidence in the light most favorable to it, as we are required to do on a motion for judgment of involuntary nonsuit, Bridges v. Graham, 246 N.C. 371, 98 S.E.2d 492, it tends to show that defendant was not the owner of the Chevrolet automobile, and obtained a certificate of title to it from the Commissioner of Motor Vehicles by false representations to the Motor Vehicles Department in his sworn, written application to it for a certificate of title that he was, when in fact his brother owned the Chevrolet. Certainly, this evidence, considered in the light most favorable to plaintiff, gave defendant no insurable interest in the Chevrolet automobile, which any court of law or equity would recognize as an insurable interest and that the policy of insurance issued to defendant by the plaintiff is void. This is said in Hirsch v. City of New York Ins. Co., supra [218 Mo.App. 673, 267 S.W. 52]: "This case is no different in principle than if a stranger had procured a certificate of title to this automobile when the automobile in fact belonged to plaintiff. Under such circumstances, of course, no reasonable person would say that the real ownership was in the stranger, although the issuance of such a certificate is no doubt some evidence of title."

It is a firmly established general rule that an insurer who has made a payment under an erroneous belief induced by a mistake of fact that the terms of the insurance contract required such payment is entitled to restitution from the payee, provided the payment has not caused such a change in the position of the payee that it would be unjust to require a refund. The rule is bottomed on the equitable doctrine that an action will lie for the recovery of money received by one to whom it does not in good conscience belong, the law presuming a promise to pay. Pilot Life Ins. Co. v. Cudd, 208 S.C. 6, 36 S.E.2d 860, 167 A.L.R. 463; St. Paul Fire & Marine Ins. Co. v. Pure Oil Co., 2 Cir., 63 F.2d 771; Roney v. Commercial Union Fire Ins. Co., 225 Ala. 367, 143 So. 571; Franklin Life Ins. Co. v. Ward, 237 Ala. 474, 187 So. 462; Ponder v. Jefferson Standard Life Ins. Co., 201 Ark. 179, 143 S.W.2d 1115; Couper v. Metropolitan Life Ins. Co., 250 Mich. 540, 230 N.W. 929; Riegel v. American Life Ins. Co., 153 Pa. 134, 25 A. 1070, 19 L.R.A. 166; Prudential Ins. Co. of America v. Somers, Court of Common Pleas of Conn., 20 Conn. Super. Ct. 351, 135 A.2d 365; Great American Ins. Co. v. Yellen, 58 N.J.Super. 240, 156 A.2d 36; North River Ins. Co. v. Aetna Finance Co., 186 Kan. 758, 352 P.2d 1060; Kentucky Farm Bureau Mutual Ins. Co. v. Cobb, Court of Appeals of Kentucky, 290 S.W.2d 606; Scottish Metropolitan Assurance Co., Ltd. v. P. Samuel and Co., Ltd., (1923), 1 KB 348; Annotation 167 A.L.R. 472-476.

It is a thoroughly well established general rule that money paid to another under the influence of a mistake of fact, that is, on the mistaken belief of the existence of a specific fact material to the transaction, which would entitle the other to the money, which would not have been paid if it had been known to the payor that the fact was otherwise, may be recovered, provided the payment has not caused such a change in the position of the payee that it would be unjust to require a refund. 40 Am.Jur., Payments, § 187 and § 192; 70 C.J.S. Payment § 157. Such is the law in this jurisdiction. Adams v. Reeves, 68 N.C. 134, 135, 12 Am.Rep. 627; Simms v. Vick, 151 N.C. 78, 65 S.E. 621, 24 L.R.A.,N.S., 517, 18 Ann.Cas. 669; Sparrow v. John Morrell & Co., 215 N.C. 452, 2 S.E.2d 365; National Bank of Sanford v. Marshburn, 229 N.C. 104, 47 S.E.2d 793; Tarlton v. Keith, 250 N.C. 298, 108 S.E.2d 621.

"An action to recover money paid under a mistake of fact is an action in assumpsit and is permitted on the theory that by such payment the recipient has been unjustly enriched at the expense of the party making the payment and is liable for money had and received." Morgan v. Spruill, 214 N.C. 255, 199 S.E. 17, 19. In accord, see 4 Am.Jur., Assumpsit, § 24.

In North River Insurance Company v. Aetna Finance Co., supra [186 Kan. 758, 352 P.2d 1062], the Court said: "As early as the times of Oliver Cromwell, courts of law in England held that the action of general or indebitatus assumpsit would well lie on the common count of money had and received, where the plaintiff showed that he had under mistake of fact paid money to defendant under a supposed duty. Attention is directed to the decision in the year 1657, in the case of Bonnel v. Fouke, 2 Siderfin 4; translated from the Norman French and reprinted in Scott & Simpson, Civil Procedure 104."

"While the ownership of, and title to, property is ordinarily a mixed question of law and fact, a payment made under mistake with respect thereto is usually treated as made under a mistake of fact rather than a mistake of law." 70 C.J.S. Payment § 157, p. 370. To the same effect: Kentucky Farm Bureau Mutual Ins. Co. v. Cobb, supra; Roney v. Commercial Union Fire Ins. Co., supra.

"As a general rule, it is no defense to an action for the recovery of a payment made under mistake of fact that the money or property has been paid over to another or spent by the payee." 70 C.J.S. Payment § 157, p. 372. To the same effect: Moors v. Bird, 190 Mass. 400, 77 N.E. 643; Picotte v. Mills, 200 Mo.App. 127, 203 S.W. 825; Scottish Metropolitan Assurance Co., Ltd. v. P. Samuel and Co., Ltd., supra.

In St. Paul Fire & Marine Ins. Co. v. Pure Oil Co., supra, which was an action by marine insurers for money paid through mistake in settlement of cargo loss, it was held that deduction of premiums was essential, but tender before suit unnecessary. L. Hand, C. J., speaking for the Court said: "The premium must of course be deducted, but as this is an action for money paid, no tender before suit was necessary." [63 F.2d 773.]

Plaintiff's evidence, considered in the light most favorable to it, and giving it the benefit of every reasonable intendment upon the evidence and every reasonable inference to be drawn therefrom according to the rule in passing on a motion for judgment of involuntary nonsuit, tends to show:

Defendant obtained from the Commissioner of Motor Vehicles a certificate of title on the Chevrolet here by a false representation in his sworn, written application for a certificate of title on the Chevrolet that he had bought the Chevrolet from his brother, and that he was the owner of the Chevrolet, whereas in truth and in fact he had not bought the Chevrolet from his brother, and his brother was the owner of the Chevrolet. That by the same false representation and fraud he obtained from plaintiff the policy of insurance here. That when the Chevrolet was damaged by fire and hail he made a claim with plaintiff for the payment of such damage to the Chevrolet under the policy of insurance. That plaintiff made the two payments under the policy of insurance for the fire and hail damage to the Chevrolet above set forth, under an erroneous belief induced by a mistake of fact caused by the false representations of defendant that he was the owner of the Chevrolet, which was material to the transaction, and that the terms of the policy of insurance required such payments. That plaintiff would not have made such payments, if it had known the fact was otherwise. That plaintiff did not know that defendant was not the owner of the Chevrolet, until after it had brought suit to recover fire damage to the Chevrolet caused by the alleged negligence of Clarence Eastridge by virtue of the subrogation receipt given by defendant to it, when it was told of such fact by defendant.

Plaintiff's adjuster testified in substance: We put the garage on the drafts as a payee to protect it: we know from experience an owner often can get a garage to endorse a draft, and retain the full amount. Defendant's subrogation receipt given to plaintiff states defendant has received from plaintiff the sum of $806.24 in full settlement for loss occurring on 23 April 1959. This was the fire damage. In the statement of the agreed case on appeal it is stated: "The defendant claimed and received insurance payments as a consequence of fire and hail damage sustained to the automobile."

Defendant voluntarily endorsed the drafts and received the proceeds, or voluntarily permitted the proceeds of the drafts to be received by Chambers and Poindexter Body Shop in payment of repairs to his brother's Chevrolet. Whether he received the proceeds of the drafts and expended them, or permitted the proceeds to be paid to another, is no defense to the present action for the recovery of payments made by plaintiff for fire and hail damage to the Chevrolet under a mistake of fact induced by his false representations and fraud, provided the jury finds such facts exist. Money paid under a mistake of fact is not the money of the payee.

Plaintiff's evidence, considered in the light most favorable to it, does not tend to show that the payments for fire and hail damage by plaintiff to defendant have caused such a change in the position of the defendant payee that it would be inequitable or unjust to require him to make full restitution to plaintiff less the amount of premium paid for the insurance, but it does tend to show that such payments belong in equity and good conscience to plaintiff who paid them, and that plaintiff is entitled to full restitution, minus the amount of premium received by it for the policy of insurance.

The judgment of involuntary nonsuit was improperly entered.

Reversed.