Fire Association v. Ward

This certificate involves the sufficiency of a bill of complaint filed in the Circuit Court of Randolph County on behalf of the Fire Association of Philadelphia, a corporation, against Evaline C. Ward, Wayne Stalnaker, and The Federal Land Bank of Baltimore, and others, wherein said association, under the provisions of a "union mortgage clause" attached to a policy of insurance issued in the name of Evaline C. Ward, seeks subrogation to the rights of the defendant bank in the amount of $831.90, which the plaintiff paid the bank after a fire loss. The circuit court having sustained a demurrer interposed by defendant Stalnaker, the pleading is here on certificate.

The bill charges, among other things, that on October 25, 1924, Evaline C. Ward, owner in fee of a tract of land in Randolph County, with improvements thereon, together with her husband mortgaged some to the bank to secure a loan of $2,500.00, represented by a note; that by the terms of the mortgage Evaline C. Ward individually, and on behalf of her personal representatives and assigns covenanted "to insure, and pending the existence of this mortgage, to keep insured * * * the improvements on the hereby mortgaged property to the amount of at least Eight Hundred Dollars" and to cause the policy to be so framed "as in the case of fire to enure to the benefit of the said Bank, its successors or assigns, * * * and to deliver said policy to the said Bank"; that the mortgage was duly recorded and the policy obtained and delivered; that on February 4, 1928, mortgagor and husband, by a deed duly recorded, conveyed the property, subject to the mortgage, to Wayne Stalnaker, the latter agreeing to pay the bank's debt, and to support the Wards during their lives; that a vendor's lien was retained in the deed to Stalnaker, to secure both the bank's indebtedness and the maintenance and support of the Wards.

The bill further charges that the bank's mortgage has not been paid off in accordance with the tenor and effect of the mortgage; that on November 2, 1931, the improvements were destroyed by fire; that prior to such fire plaintiff insurance company, on October 14, 1930, and in the absence of knowledge or information of the deed to Stalnaker, issued a three-year policy in the amount of $1,000.00, which policy provided, among other things, as did the preceding policies, that it should be void (a) if the interest of the insured be other than unconditional and sole ownership; or (b) if the ground upon which the building stood was not owned by insured, and which policy had attached thereto a "Mortgagee clause with full contribution," better known as a "union mortgage clause," which provided, in part, that: "Whenever this Company shall pay the mortgagee any sum for loss or damage under this policy and shall claim that, as to the mortgagor or owner, no liability therefore existed, this Company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made, under all securities held as collateral to the mortgage debt, or may at its option pay to the mortgagee the whole principal due, or to grow due on the mortgage with interest, and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities; but no subrogation shall impair the right of the mortgagee to recover the full amount of its claim."

In addition to the foregoing the bill alleges that the policy, in so far as Evaline C. Ward was concerned, was void because, at the time of its issuance, Evaline C. Ward was not the owner of the property, and that the buildings covered by the policy were not on property owned by her.

It is further averred that, prior to the fire, neither plaintiff nor the bank had knowledge of the change in ownership of the property, nor did Stalnaker have any knowledge pertaining to the policy of insurance issued to the Wards; that Stalnaker procured other insurance, payable to himself, which did not contain a mortgage clause and did not show any interest in the bank in the property; that, after the fire, claim was made upon plaintiff by the bank for the payment of the full amount of the policy of fire insurance; that liability was denied to the Wards under the stated provisions of the policy of October 14, 1930, regarding unconditional ownership and lack of ownership of ground on which the property was located; that, notwithstanding the position regarding the Wards, plaintiff, under the terms of the mortgage clause, was liable to the bank, and, upon making payment to the bank under said clause, became and was entitled to subrogation to the rights of the bank under the mortgage; that, under the contract of insurance, plaintiff paid the bank $831.90, being the pro rata amount for which it was liable to the bank, and on the 16th day of January, 1933, it obtained from the bank a subrogation receipt, under the terms whereof plaintiff, after the bank had been paid in full its debt of $2,500.00 (including said amount so received from the plaintiff) would be subrogated to the rights of the bank and to the lien existing upon said property; that said subrogation receipt was duly recorded, thereby notice being given to subsequent purchasers; that to the extent of $831.90, with interest, plaintiff was in equity the owner of the mortgage; that the Wards made payments, until March 29, 1946, at which time, including the $831.90, paid by plaintiff, the bank had received the full sum of $2,500.00 and interest, but neither the Wards nor Stalnaker paid the bank the sum of $831.90 paid by plaintiff to the bank; and that on the same day the bank assigned to plaintiff (1) the benefit of said mortgage to the amount of $831.90, with interest from January 16, 1933, which assignment, after recordation, gave notice that the mortgage had not been paid off and discharged; and (2) the note upon which there is a balance due and owing plaintiff of $831.90, with interest from January 16, 1933, until paid; that Stalnaker and the Wards, on December 18, 1945, conveyed to one Sneberger the real estate, subject to the morgtage; that Sneberger had full knowledge from the records that the mortgage was unpaid and that plaintiff was the owner of $831.90 thereof, with interest, the payment of which sum plaintiff was not entitled to enforce until the bank had been paid sums owing to it under the terms of the mortgage, policy of insurance, subrogation receipt and assignment.

And, finally, the bill of complaint alleges that Evaline C. Ward and her husband are indebted to plaintiff in the sum of $831.90, with interest from January 16, 1933, at five and one-half per cent yearly; and that said debt and interest are part and parcel of the mortgage debt, are secured under the terms thereof, and are due and owing to plaintiff.

The bill of complaint prays for a decree against the Wards for $831.90, with interest; that said sum be adjudged a lien on the property, and secured to plaintiff under the mortgage; and that the real estate be sold for the purpose of discharging the mortgage.

In his demurrer Stalnaker takes the position (1) that since Evaline C. Ward was not the owner of the land or buildings thereon on October 14, 1930, the date the policy in question was issued, the policy was void from the time of issuance, and as a result no interest could inure or inhere to the benefit of the mortgagee bank, plaintiff insurance company, or any other person thereunder; (2) that the plaintiff was a mere volunteer; and (3) that there was no benefit due Ward or Stalnaker himself. And, in support thereof, he cites the case ofImperial Building Loan Association v. Aetna Ins. Co., 113 W. Va. 62,166 S.E. 841. In point 2 of the syllabus of that case, the Court held: "When the mortgagee has no interest in the insured property, the `standard mortgage clause' attached to the insurance policy in its favor is invalid."

It is a rule of insurance law generally that the person taking out the policy must have an insurable interest in the subject matter of the insurance; and if such interest is lacking the policy is void. To hold otherwise would be to go against the spirit and purpose of the contract, as well as against public policy. Another general rule is to the effect that if a fire insurance policy is conditioned to be void in case of any misrepresentation whatever, any misrepresentation, whether material or not, will avoid it.

"A person usually has an insurable interest in the subject matter insured when 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." 44 C. J. S. 870, Section 175b. Hence, a mortgagor of property has an insurable interest therein, to the extent of its full value. 44 C.J.S. 883, Section 187a. In Bowman v. Hartford Fire Ins. Co.,113 W. Va. 784, 169 S.E. 443, this Court held: "A vendor of real property who retains a vendor's lien to secure the purchase price has an insurable interest." Also see Hamlet v.American Fire Ins. Co., 107 W. Va. 687, 150 S.E. 7. The mortgagee bank had an interest by virtue of its mortgage and note to the extent of the balance due it from the mortgagor: quite a different situation from that presented in ImperialBldg. Loan Association v. Aetna Ins. Co., supra.

The mortgagor not owning the land or improvements thereon at the time of the issuance of the policy, the insurance company was justified in denying liability to her under the policy. Yet, as stated above, the mortgagor did have an insurable interest sufficient to support the independent contract under the union mortgage clause, and, therefore, the bank's claim thereunder was a valid one, for which the plaintiff insurance company was liable. The latter, having made payment to the mortgagee bank, is entitled, under the terms of the union mortgage clause to subrogation to the bank's rights under the mortgage. See Heldreth v. Federal Land Bank of Baltimore,111 W. Va. 602, 163 S.E. 50, in which this Court, in point 2, syllabus, held: "Where an insurer in a fire insurance policy denies liability to the insured for legal cause, it is entitled to be subrogated to the rights of the mortgagee in the amount paid to it by the insurer."

The union mortgage clause of the policy has been held by this Court to be a separate contract for the benefit of the mortgagee. Fayetteville Building and Loan Association v. MutualFire Insurance Company of West Virginia, 105 W. Va. 147, 149,150, 141 S.E. 634. See Judge Maxwell's concurring note toImperial Building Loan Association v. Aetna Ins. Co., supra, page 70. And the fact that the policy was void as to the mortgagor, Evaline C. Ward, did not vitiate the effect of the clause in so far as the respective rights and obligations of the bank and the insurance company are concerned. Under the portion of the union mortgage clause, heretofore quoted in this opinion, which was inserted in the policy in conformity with Acts of the West Virginia Legislature, 1923, Chapter 18, Section 68, (Code, 33-4-7) the insurance company was expressly required to pay to the bank, as it did, the controverted sum of $831.90, with interest, and in turn the insurance company had the express right to be subrogated to the right which the bank had under the mortgage to enforce the payment of the money secured thereby. Stalnaker, in our opinion, if he did not have actual notice that the mortgage required insurance, with the usual mortgage clause attached, had constructive notice thereof by reason of the fact that the mortgage of October 25, 1924, of Evaline C. Ward to the bank contained a provision requiring the mortgagor to keep the property insured under a policy or policies containing a mortgage clause for the benefit of the mortgagee, and by his assumption of the indebtedness secured by the mortgage in the deed whereby he obtained the property. But according to the allegations of the bill of complaint, which, on demurrer, must be taken as true, neither the insurance company nor the bank, at the time the policy of insurance in question was issued, had actual notice of Stalnaker's interest, and, because the Stalnaker deed was subsequent to the mortgage, the rights under the mortgage had vested. Furthermore, the insurance company and the bank were strangers to the Stalnaker transaction and constructive notice cannot be imputed to them. Webb v. Ritter,60 W. Va. 193, pt. 15, syl., 54 S.E. 484; Parks v. Morris,Layfield Co., 63 W. Va. 51, pt. 5, syl., 59 S.E. 753; Carden v. Bush, 109 W. Va. 655, syl., 155 S.E. 914.

Being of the opinion that the bill of complaint is sufficient, the ruling of the circuit court is reversed and the cause remanded.

Ruling reversed and cause remanded.