Roper v. National Fire Insurance

As we have held on the plaintiffs' appeal, the court below correctly held that C. E. Roper, the insured, cannot recover of either of the defendants. The court, however, adjudged that plaintiff G. H. Valentine, trustee in bankruptcy for J. M. Stepp, mortgagee named in the National policy, recover of said company $3,200, the mortgage indebtedness, and be subrogated to the rights of the mortgagee; that the plaintiff A. L. Holmes, contract creditor named in the policy, recover of the Dixie Company, $1,000; that plaintiffs Clarke Hardware Company and Rigby-Morrow Company, material lienors, recover of the Petersburg Insurance Company, $2,407.

The defendants by proper exceptions and several prayers for instructions, which were refused, bring before us for review the correctness of such judgments.

THE NATIONAL POLICY.

This covered $5,000 on the building and contained what is called a New York and New Jersey standard mortgage clause attached as a rider to the policy, the effect of which is to provide that the right of the mortgagee Stepp shall not be affected by any acts or negligence on the part of Roper, the insured.

It insures the interest of the mortgagee Stepp, and in that respect differs materially from an ordinary "loss payable" clause. The premiums having been paid, it is therefore incumbent on the defendant company to show some act of the mortgagee which avoids the policy as to him.

The proof shows that Stepp was adjudicated a bankrupt on 31 (159) March, 1911, and plaintiff Valentine was appointed trustee in bankruptcy, and the note and mortgage on the property afterwards burned, were duly assigned to him, and that he held them at the time of the fire.

Concerning the duty of a mortgagee under this clause, Mr. Ostrander says: "The interest of the mortgagee is so far recognized in particular cases that, besides being named as the payee, there is attached to the policy a special stipulation for his better protection. This stipulation is to the effect that the policy shall not be invalidated as to the mortgagee's interest because of any act or neglect of the mortgagor. For this surrender by the insurer of important contract rights expressed in the policy which are either annulled or qualified by the stipulation, the mortgagee promises to give notice of any change in the ownership of his property or increase of hazard which comes to his knowledge."

We are of opinion that the adjudication in bankruptcy, being an involuntary act upon the part of Stepp, did not avoid this policy. There is respectable authority to be found to the contrary, but this Court has held in Pants Co. v. Insurance Co., 159 N.C. 78, that the appointment of a receiver for the property of a corporation is not ground for forfeiting a policy of insurance on the property of the corporation. In the opinion in that case the authorities are cited, and we regard it as analogous to the case of the National policy.

In this appeal by the National Fire Insurance Company of Hartford we think the assignee Valentine is entitled to recover, and the judgment of the Superior Court upon this policy is affirmed.

Let the defendant National Fire Insurance Company of Hartford pay the costs of appeal in this particular case.

THE PETERSBURG POLICY.

To this policy was attached a New York and New Jersey standard mortgage clause, declaring the "loss or damage, if any, under this policy shall be payable to Clarke Hardware Company and Rigby-Morrow Company as mortgagees (or trustees), as interest may appear.

The parties named in this mortgages clause as holding mortgages or deeds of trust, instead of holding mortgages or deeds of trust as represented, were at the time creditors of the plaintiff C. E. Roper (160)for materials furnished for the building which was subsequentlyburned. On 14 January 1911, the date of the issue of the policy, these creditors had only an inchoate right of lien for materials furnished; that is to say, they had not filed their liens, nor did they file them until nearly two months later, to wit, 16 March, 1911.

The contract of insurance being void as to Roper, the plaintiffs Hardware Company and Rigby Morrow Company cannot recover under the mortgage clause, for at the date the policy was issued they held no mortgage or other insurable interest on the property and cannot bring themselves within the terms of the policy. They were then only simple contract creditors with an inchoate right to file a lien, which was not done until two months after the policy was issued.

The plaintiffs were not either mortgagees, trustees, or lienors when the policy was issued. Revisal, secs. 2026-2029; Clarke v. Edwards,119 N.C. 120; Lumber Co. v. Hotel Co., 109 N.C. 661. A mortgage has priority over a lien for materials furnished. Cox v. Lighting Co.,152 N.C. 164.

Yet another reason why the language, "mortgagee or trustee," cannot be held to embrace lienors claiming under material liens is that, as against a mortgage or deed of trust, the grantor has no right of homestead, whereas as against material liens the debtor is entitled to his homestead. Broyhillv. Gaither, 119 N.C. 443; Cumming v. Bloodworth, 87 N.C. 83;Cheeseborough v. Sanatorium, 134 N.C. 245.

At the date of the issue of the policy the Clarke Hardware Company and the Rigby-Morrow Company held no insurable interest in the property, and that is essential in order to take benefit under the New York and New Jersey standard mortgage clause. These plaintiffs could only claim as ordinary creditors under an ordinary loss payable clause. Their claim under that was forfeited by the act of Roper, the insured, as we will later show.

For these reasons we are of opinion that his Honor erred in rendering judgment in favor of the said plaintiffs, and that they are not (161) entitled to recover.

THE DIXIE POLICY.

This policy was issued 12 October, 1910, and the deed of assignment by Roper to that company was made 15 October, 1910. This policy covers $1,000 on the building and $2,000 on furniture, and contains a simple loss payable clause (not a standard mortgage clause) in favor of plaintiff Holmes, who held a deed in trust on the real property insured for $3,300.

This is the only mortgage indebtedness referred to in the Dixie policy, and of the existence of this and of the other three mortgages and deeds of trust, two of which were executed to the Wanteska Trust and Banking Company, the defendant had no knowledge until after the fire. No indorsement in writing was made and no word of notice given.

The court, holding, the policy in the Dixie Fire Insurance Company void as between Roper, the assured, and the company, held that A. L. Holmes, named in the contract of insurance as a contract creditor, with only a loss payable clause, was entitled to recover judgment of the defendant to the extent of $1,000, the amount of the policy written upon the building, in like manner as if there had been in the policy a New York and New Jersey standard mortgage clause.

His Honor properly held that Holmes could not recover any part of the insurance upon the furniture under the loss payable clause, as he held no mortgage, and Roper, the insured, had forfeited the policy by his own act under the authority of Weddington v. Insurance Co., 141 N.C. 235.

This leaves to be considered the question of the validity of the $1,000 covered by this policy on the hotel property. The court held that the policy was void as to the insured Roper. Can A. L. Holmes, the mortgagee to whom the policy was made payable as his interest should appear, recover upon this contract independent of the right of the insured, Roper?

It will be observed that this rider is not what is known as the New York and New Jersey standard form, but contains merely a loss (162) payable clause. In such cases the courts with unanimity hold that the mortgagee acquires no greater rights than those enjoyed by the mortgagor insured. Such a clause amounts merely to a designation of the person to whom the policy is to be paid in case of loss, and not to an insurance on his own behalf. Building Association v. Insurance Co.,83 Iowa 647.

"He is a mere appointee, whose right is not an independent one, but is a mere right to receive the whole or a part of the money to which the insured may be entitled." Wonderlich v. Palatine Fire Insurance Co., 104 Wis. 395.

Cooley says that the rights of the appointee under an ordinary loss payable clause are wholly dependent upon the right of the insured to recover, and any act of the latter in violation of the conditions of the policy will also forfeit the rights of his appointee. Briefs on Insurance, p. 1520.

Mr. Ostrander, commenting on the rights of a mortgagee under an ordinary loss payable clause as distinguished from the New York and New Jersey standard mortgage clause, says:

"When a mortgagor procures insurance in his own name, and a loss occurs, the mortgagee can claim no benefit. If, however, the policy is indorsed, ``Loss payable to the mortgagee,' he is then entitled under the policy to receive any money which the insurer is liable to pay under the policy, but the making of the mortgagee the payee of the policy does not in any essential particular change the relations theretofore existing between the insurer and the mortgagor. The latter is still bound by the covenants of the contract, and any failure to perform the conditions precedent will discharge the insurer. The mortgagee can take no more than is due the mortgagor, and if by reason of any act or neglect of the latter an avoidance has resulted, the former has no remedy."

Mr. Cooley, on p. 1227, again says: "Therefore, if the insured could not recover, there was nothing on which the mortgagee could base his right to recover. It seems to be the theory generally that a policy taken out by the owner, payable to the mortgagee as his interest may appear, is directly on the owner's interest, and therefore the mortgagee's right is wholly dependent upon the validity of the policy in the hands of the insured." (163)

Flanders on Fire Insurance, p. 441, says: "Where the policy provides that the loss, if any, is payable to another (to a mortgagee, for example), instead of the insured, it is merely a designation of the person to whom it is to be paid, and is not an assignment of the policy; hence, it is the damage sustained by the party insured, and not by the party appointed to receive payment, that is recoverable from the insurers. The insurance being on the interest of the insured, if he parts with that interest before the fire, no loss is sustained by him, and, of course, none is recoverable by his assignee or appointee."

See, also, Brecht v. Insurance Co., 18 L.R.A., N.S., 197; InsuranceCo. v. Hullman, 96 Ill. 154; Saving Institution v. Insurance Co.,119 Mass. 240; Savings Association v. Fire Insurance Co., 44 N.Y. S., 929;16 A.D. 589; Lindly v. Orr, 83 Ill. App. 70; Rackley v. Scott, 61 N. H., 140; Carter v. Rockett, 8 Paige, 437; Baldwin v. Insurance Co.,105 Iowa 379.

It having been adjudged that Roper, the insured, had avoided the policy by his own act, and cannot recover, it necessarily follows that Holmes, the mortgagee, cannot recover under the ordinary loss payable clause, and that the court below erred in rendering judgment in his favor.

The judgments on the defendants' appeal are reversed.

The costs will be taxed against the plaintiffs, except in the appeal of the National Fire Insurance Company of Hartford, wherein Valentine is plaintiff.

Error.