Hastings v. . Westchester Fire Ins. Co.

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] A contract of insurance stands upon precisely the same basis as any other agreement and, in accordance with a general rule, must be interpreted according to its purport in connection with the facts and circumstances which attend its execution. The main object should be to carry out and to give effect to the intention of the parties. In the case presented for adjudication, it was the evident purpose of both parties to secure the plaintiffs as mortgagees against any loss by reason of a destruction of the buildings situated upon the mortgaged premises. The mortgage had been executed by the owner of the premises some time prior to the issuing of the policy to said owner to secure her against loss and damage by fire for the period of three years, and by the policy other insurance was allowed. Subsequently, with the consent of the owner, the defendant agreed, by an indorsement upon the policy, that the loss, if any, should be payable to the plaintiffs, and a mortgage clause was annexed to the policy, by which it was agreed that the insurance, as to the interest of the mortgagee only therein, should not be invalidated by any act or neglect of the owner of the property insured, nor by the occupation of the premises for purposes more hazardous than was permitted by the policy. It also contained, among others, a further provision, to the effect that whenever the company should pay the mortgagee any sum for loss, and claim that as to the mortgagor or owner no liability therefor existed, it should at once be subrogated to all the rights of the mortgagee under all the securities held as collateral to the mortgage debt to the extent of such payment; but that such subrogation should not impair the right of the mortgagee to recover the full amount of his claim; or, at its option, said company might pay to the mortgagee the whole amount of the mortgage and receive a full assignment thereof.

At the time when the contract, expressed in the entry upon the policy of insurance, and in the stipulation to which we have referred, was made, it appears to have been quite obvious that the design of the parties was to secure to the plaintiffs the amount named in the policy of insurance in case of loss by fire, and that the defendant should pay the whole amount of any loss, with the right of subrogation, in the place of the plaintiffs, in case of the happening of the contingency stated therein. It is claimed, however, by the appellant's counsel, that the policy was an insurance of the interest of the owner of the property solely; that such owner was the assured, and the defendant only agreed to make good the loss of such owner; and inasmuch as another policy existed at the time, in favor of such owner, although entirely unknown to both the plaintiffs and the defendant, the latter was entitled to the benefit of the condition contained in its policy, which declares that in case of any other insurance, whether prior or subsequent to the date of the policy, the assured was entitled to recover no greater proportion of the loss sustained than the sum insured bears to the whole amount insured thereon.

This position cannot, I think, be maintained. Prior to the time when the mortgage clause was entered upon the policy, the word "assured" referred to the owner, and it is hardly to be assumed that the mortgagees would have accepted such a provision if there was any reason to suppose that they would be affected by any prior insurance. They would, no doubt, have demanded a separate policy as mortgagees, instead of trusting to the hazard and uncertainty of pursuing a remedy upon a policy of which they had no knowledge, and against a company to which they were strangers, and in regard to whose responsibility they had no information whatever. The legal effect of the mortgage clause was, that the defendant agreed that in case of loss it would pay the money directly to the mortgagees; and they were thus recognized as a distinct party in interest. It created a new contract from that time with the mortgagees, the terms of which most clearly indicate that it had no relation to the application of the condition referred to. The insurance had been to the owner, and the additional provisions, which were incorporated in the policy by the mortgage clause, created a distinct contract with the mortgagees. It was an independent agreement partaking in no sense of the character of an assignment of a policy of insurance, but one in which the mortgagees were recognized as a separate party, having distinct rights, and entitled to receive the full amount of insurance money, without any regard whatever to the owner of the property. The meaning of the word "assured" has not been changed by the addition of the mortgage clause, the object of which evidently was to protect the mortgagees against the effect of the provision in which that word is employed.

The interest of the latter was distinct and separate when this change in the policy was made, and the intention of the parties was, beyond question, to insure the plaintiffs under a new contract. Any different interpretation would lead to great injustice, and place the mortgagees under the control and at the mercy of the owner, by changing the character of the defendant's liability, which might operate to prevent the indemnity which the defendant intended to provide. If the condition referred to was in force either before or after the arrangement, the owner might effect other insurance, and thus jeopard the rights, if not entirely control the security, of the plaintiffs. The holder of a mortgage, who had thus been secured, would have but slender security if a double insurance could be effected, without his knowledge or consent, either before or after the contract had been made, and his contract thus jeoparded. If before the arrangement with the defendant, as was the case here, the contract created by the mortgage clause would be seriously affected, and the security intended to be furnished thereby very much impaired. There is no valid ground for the assumption that either party intended any such result or expected that any other insurance could interfere with the condition and terms of the contract into which they had entered under the mortgage clause. It is conceded that the object of this change of the policy was to protect the mortgagees, and it would fail in securing such protection if it rested in the owner's power to interfere with and deprive the mortgagees of their rights. The just and reasonable interpretation of the provision, in accordance with the rule laid down under the facts presented is, that the legal force and effect of the policy shall not be weakened or impaired. When it provides that it "shall not be invalidated," it means that it shall continue valid for the full amount named, despite of any act or neglect of the owner or mortgagor. Any other construction would be loose, indefinite, unsatisfactory, and render the clause in question of but comparatively little value. The contract incorporated in the policy of insurance by the mortgage clause is not the ordinary case of an assignment of the interest of the owner in the policy to the mortgagee, where the owner still retains control over the property, and may affect or destroy the rights of the assignees, or where the loss is payable to the mortgagee, or to some other person, and it is held that the contract is with the mortgagor and the mortgagee cannot recover in case of a breach of the conditions of the policy by the mortgagor. (Grosvenor v. TheAtlantic Fire Ins. Co. of Brooklyn, 17 N.Y., 391; The BuffaloSteam Engine Works v. Sun Mutual Ins. Co., id., 401.) Where the assignment is made by the mortgagor to the mortgagee, as collateral to the mortgage, the owner or mortgagor still, as a general rule, retains title and possession; and as his interest continues the same as previously, unless some new contract is entered into, no reason exists why the contract contained in the policy should be changed. The consent to the assignment alone, which is usually required by the by-laws of an insurance company, is not enough to divest the owner and mortgagor of his right to control, or to deprive the company of the benefit of any of the conditions of the policy; and it does not thereby waive a performance of the conditions of the policy which are regarded as material at the time of its delivery. In case the loss is payable to a third person, who has no interest in the property insured, but only claims the insurance as collateral security for liabilities incurred prior to the insurance, the latter only can maintain an action on the policy as an appointee of the owner who is authorized to receive the same. (Frink v. Hampden Ins. Co., 31 How. Pr., 30; 45 Barb., 384; Case v. Niagara Fire Ins.Co., 3 N.Y.S.C. [T. C.] R., 33, 39; Merwin v. Star FireIns. Co., 7 How., 659; affirmed in Court of Appeals; May on Fire Ins., 460; Flanders on Fire Ins., 441, 442.)

The rules laid down in the authorities cited have no application, however, to a case where a provision has been inserted in the policy which places the mortgagee upon another and a different footing from that of a mere assignee or appointee to receive the loss. The mortgage clause was agreed upon for this very purpose, and created an independent and a new contract, which removes the mortgagees beyond the control or the effect of any act or neglect of the owner of the property, and renders such mortgagees parties who have a distinct interest separate from the owner, embraced in another and a different contract. The tendency of the recent cases is to recognize these distinctions, and thus protect the rights of the mortgagee when named in the policy, and the interest of the owner and of the mortgagee are regarded as distinct subjects of insurance. (Excelsior Fire Ins. Co. v.Royal Ins. Co., 55 N.Y., 343; Springfield Ins. Co. v.Allen, 43 id., 392.)

A point is made as to the effect to be given to the second paragraph of the mortgage clause, and it is claimed that this clearly indicates that it was not intended by such clause to change the policy into an insurance of the mortgagees upon their interest, because it provides that the mortgagees shall notify the company of any change of ownership or increase of the hazard not permitted by the policy to the mortgagor or owner, as soon as the same came to the knowledge of the mortgagees. I do not think that such an inference can be drawn from the provision referred to. While it recognizes a change of ownership and an increase of hazard by the mortgagor or owner, it does not conflict with a separate and independent insurance of the interest of the mortgagees. Such a provision is not inconsistent with the existence of a distinct insurable interest of the mortgagees, or adverse to the manifest intention of the parties to protect the rights of the mortgagees, independent of the owner, and to prevent any interference with the same by the latter. Nor does the provision in the mortgage clause for the subrogation of the defendant indicate that the owner's interest only was insured. The argument is, that if the mortgagees' interest was insured, no agreement as to subrogation was required, as the right existed as a matter of law. The answer to this position is, that the agreement must be taken as an entirety; and inasmuch as a previous provision authorizes the conclusion that the interest of the mortgagees was intended to be insured, the addition of an unnecessary clause, by way of extraordinary caution, or for any other reason, cannot impair or nullify such provision. If it is valid and effectual without the subrogation clause, it was equally so with it, and its addition cannot destroy its validity, and whether the agreement be considered in reference to all its various provisions, or its different parts separately, the rights of the mortgagees remain the same.

There are, moreover, strong reasons for claiming that the insertion of the clause, in regard to subrogation, is evidence of an intention that the plaintiff should be exonerated from the application of the provision in the policy as to other insurance, and that the defendant should be protected by subrogation. By the latter provision, whenever the defendant paid the mortgagee any sum for loss, and claimed that as to the mortgagor or owner no liability existed therefor, the right to be subrogated was complete. If the full amount of the policy had been paid, and it exceeded the liability of the defendant to the owner, as was the fact if the right to contribution existed, then the defendant was fully protected by the mortgage clause. Such right would not have existed if the plaintiffs were within the provision as to other insurance, and hence it follows that it was the intention of the parties to restrict its operation, and to provide against its effect by a full and sufficient stipulation intered into for that express purpose. The contract is complete by placing such an interpretation upon its provisions, and a contrary one would be adverse to its plain meaning and import.

The construction we have given to the contract of insurance in this case works substantial justice, and the plaintiffs thereby would only receive what actually belong to them, and if a deduction of four-fourteenths is made, as is claimed should be done, no way is pointed out, nor are we able to see how, the plaintiffs could obtain the balance.

The mortgagees cannot claim the benefit of a policy executed by the mortgagor, which has never been assigned, or in reference to which they have no connection. Policies of insurance are not deemed in their nature incident to the property insured, and do not cover any interest which another person may have in the property as heir, grantee, mortgagor or creditor, unless such other person has a valid assignment of the policy. (Wyman v.Prosser, 36 Barb., 368; Carpenter v. Providence Wash. Ins.Co., 16 Peters, 495; Columbia Ins. Co. v. Lawrence, 10 id., 507, 512; McDonald v. Black, 20 Ohio, 185.)

The policy makes provision that the defendant shall only be liable for its proportion of the loss; but this cannot interfere with the rights of the mortgagees under the special contract with the company. It is not, therefore, important to consider whether under the right of subrogation, which exists in favor of the defendant, an action for contribution lies against the Lycoming Fire Insurance Company.

As the condition referred to was not intended and did not apply to the plaintiffs, it is not necessary to consider whether the word "property," as used therein, meant the interest of the mortgagees in the same.

The question of interest was properly disposed of. According to the terms of the policy the loss was payable sixty days after due notice and proofs furnished of the same. The interest, therefore, became due from that time.

The case of Mayor v. Hamilton Fire Insurance Company (39 N Y, 45) was decided, and the terms used construed in connection with the other conditions of the policy, and is not, we think, in point.

The judgment was right, and should be affirmed.