Baker v. Liverpool & London & Globe Ins. Co.
| Decision Date | 10 June 1925 |
| Docket Number | (No. 6855.) |
| Citation | 275 S.W. 316 |
| Parties | BAKER et al. v. LIVERPOOL & LONDON & GLOBE INS. CO., Limited, et al. |
| Court | Texas Court of Appeals |
Appeal from District Court, Bell County; J. B. Hubbard, Special Judge.
Action by E. N. Baker and another against the Liverpool & London & Globe Insurance Company, Limited, and another. Judgment for defendants, and plaintiffs appeal. Reversed, and judgment rendered for plaintiffs.
J. B. Talley, of Temple, for appellants.
Locke & Locke and Ralph Randolph, all of Dallas, for appellee Liverpool & London & Globe Ins. Co.
The appellants commenced this action against appellee insurance company upon a policy of fire insurance issued by it, alleging that it undertook and did insure their interest as mortgagees in a grain separator and engine.
The appellee insurance company answered by a demurrer, and specially pleaded as its principal defense a mortgage foreclosure provision in the policy which is alleged to have been violated, thereby releasing it from liability.
Appellee, W. B. Birchum, the mortgagor, was made a party defendant for the purpose of decreeing that he had no interest in the policy of insurance. He answered disclaiming any interest.
At the conclusion of the testimony, the court instructed a verdict for appellee insurance company, hence this appeal. The two principal questions presented by this appeal are: The sufficiency of the appellants' petition to authorize a recovery in the capacity of the insured under the terms of the policy naming the mortgagor as the insured, with loss payable clause making appellants payees as their interest might appear, without a specific prayer or request for a reformation of the policy in that respect, and the legal effect of the mortgage foreclosure provision in the policy as applied to the particular facts in this case.
An agent of appellee insurance company, with authority to write the policy and make the contract for insuring the property, wrote and issued it under the following facts and circumstances: Appellants owned three notes executed by W. B. Birchum to them, aggregating $1,800 plus at the time they applied for the insurance. Birchum had secured these notes to them by a chattel mortgage covering "one No. 14448 Rumely Ideal separator and one No. 13141 sixteen horse power Advance compound engine." On November 18, 1922, after each of the notes had matured, appellants took them to said insurance agent, explained to him that Birchum was the legal owner of the separator and engine, that he was indebted to them as evidenced by the notes and chattel mortgage, and applied for insurance on their interest in the property as mortgagees against loss or damage by fire. The agent told them that appellee insurance company insured the interest of mortgagees; that the regular and customary form of the policy used to effectuate the purpose was to name the mortgagor as nominal beneficiary and to insert or attach a loss payable clause naming the mortgagee as payee; and that the company required a written application, signed by the mortgagor. They went to the mortgagor and the agent explained to him that appellants were applying for insurance on their interest as mortgagees, and that the company required a written application from him, whereupon he signed the application, it being understood that he was in no way applying for the insurance. Appellants then paid the premium for one year and the policy was issued and delivered to them, insuring the separator for $900 and the engine for $850. The loss payable clause, attached to the policy, reads:
"It is agreed that any loss or damage ascertained and proven to be due to the assured under this policy shall be held payable to E. N. Baker as interest may appear, subject, however, to all the terms and conditions of this policy."
This clause was reformed without objection, so as to make E. N. Baker and C. O. Robinson, who were joint owners of the notes loss payees. The facts are undisputed and constitute appellants the insured under the contract for the insurance. A mortgagee is the insured, where he applies for the insurance on his interest in the mortgaged property, fully informs the insurance company of that interest, pays the premium and obtains the policy which the insurance company selected, issued, and delivered to effectuate the purpose, declaring to him that such was its regular and customary form of policy for insuring the interest of a mortgagee, though the form of the policy was in fact that regularly and customarily used by the company for insuring the interest of the owner or mortgagor, with a loss payable clause making the mortgagee payee.
The contention in this connection, that appellants' petition is insufficient to authorize a recovery in the capacity of the insured without a specific prayer or request for a reformation of the policy in that respect, is without merit. The appellants pleaded in detail all the facts leading to the execution and delivery of the policy in suit. The Supreme Court in Insurance Co. v. Brannon, 99 Tex. 391, 89 S. W. 1057, 2 L. R. A. (N. S.) 548, 13 Ann. Cas. 1020, held that, under our blended system of law and equity, it is not necessary to first maintain an action to reform an insurance contract before suing on it, nor is it necessary in suing on such contract, with allegations of facts entitling one to its reformation, that he should pray for or obtain a formal judgment of reformation; but he is entitled to a direct judgment in accordance with the true contract pleaded. We are also of the opinion that, since the policy sued on is by agreement that regularly and customarily used by appellee insurance company for insuring the interest of a mortgagee, and being so intended, no necessity exists for its reformation in this particular as a prerequisite to a recovery, because a judgment for appellants would simply enforce the contract for the insurance as made.
The remaining question is the legal effect of the mortgage foreclosure provision of the policy which reads:
"This entire policy * * * shall be void * * * if, before a fire occurs, the insured shall obtain or receive information that foreclosure proceedings have been commenced, or that notice has been given or posted of sale of any property covered by this policy by virtue of any mortgage or trust deed."
The facts relating to the breach of this provision are: On December 15, 1922, after telling the mortgagor they were going to do so, appellants sued him upon the notes and for foreclosure of the mortgage lien on the insured property, and duly served him with citation on that date. A default judgment for $1,845.69 was rendered on January 2, 1923, with a foreclosure of the mortgage lien. An order of sale issued, and notice of sale was duly published in the county about which the mortgagor had notice. Before the sale took place, the separator was destroyed and the engine damaged by fire, on either the 5th or 6th day of May, 1923. The property remained at all times in the possession of the mortgagor, where it was when insured. Of course, this proceeding constituted a breach of the provision, and if it is applicable to appellants, they cannot recover.
The trial court construed the provision to be a part of appellants' contract for insurance, upon the theory that the phrase in the loss payable clause, "as interest may appear subject, however, to all the terms and conditions of this policy," made it so.
Much litigation has arisen upon the question as to the construction to be given policies of insurance containing the same or similar provisions and conditions as the one here. It also appears, from an examination of the authorities, that there is some conflict in the decisions on this question. The conflict seems to be due in many instances to the fact that some courts construe a contract of insurance literally, and attempt to enforce it as if the parties were dealing at arm's length and upon equal footing, while other courts hold that since the contract is wholly written by the insurance company, it should be strictly construed against it. Another source of difference arises from an application of the doctrine that the law abhors a forfeiture as applied to an insurance contract, some courts applying the rule rigidly, while others hold that the application of the rule is a mere aversion which has resulted in a rule of technical...
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