Central Union Bank v. NEW YORK UNDERWRITERS'INS. CO.

• Decision Date: 12 October 1931
• Docket Number: No. 3146.,3146.
• Citation: 52 F.2d 823
• Parties: CENTRAL UNION BANK OF SOUTH CAROLINA v. NEW YORK UNDERWRITERS' INS. CO.
• Court: U.S. Court of Appeals — Fourth Circuit

52 F.2d 823 (1931)

CENTRAL UNION BANK OF SOUTH CAROLINA v. NEW YORK UNDERWRITERS' INS. CO.

No. 3146.

Circuit Court of Appeals, Fourth Circuit.

October 12, 1931.

Albert Lee Wardlaw, of Columbia, S. C. (Elliott, McLain, Wardlaw & Elliott, of Columbia, S. C., on the brief), for appellant.

Joseph L. Nettles, of Columbia, S. C., for appellee.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

PARKER, Circuit Judge.

This was an action on a fire insurance policy instituted by the Central Union Bank of South Carolina, hereafter referred to as plaintiff, against the New York Underwriters' Insurance Company, hereafter referred to as defendant. Verdict was directed for defendant, and, from judgment thereon, plaintiff has appealed.

The property insured belonged to one Anderson. He executed to the Palmetto Trust Company a bond with a mortgage on the property to secure same, which required that the mortgagor keep in force insurance on the property for the protection of the mortgagee. The Palmetto Trust Company assigned the bond and mortgage to the Metropolitan Life Insurance Company; and some time thereafter Anderson, pursuant to the provisions of the mortgage, procured and delivered to the latter company the policy here in suit. Attached to it was a New York standard mortgage clause making the loss, if any, payable to that company as its interest might appear. The pertinent part of the clause is as follows:

"Loss or damage, if any, under this policy, shall be payable to Metropolitan Life Insurance Company, New York, N. Y. as mortgagee (or trustee), as interest may appear, and this insurance, as to the interest of the mortgagee (or trustee) only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property, nor by any foreclosure or other proceedings of notice of sale relating to the property, nor by any change in the title or ownership of the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy; Provided, that in case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee (or trustee) shall, on demand, pay the same. Provided, also, that the mortgagee (or trustee) shall notify this company of any change of ownership or occupancy or increase of hazard which shall come to the knowledge of said mortgagee (or trustee) and, unless permitted by this policy, it shall be noted thereon and the mortgagee (or trustee) shall, on demand, pay the premium for such increased hazard for the term of the use thereof; otherwise this policy shall be null and void."

On November 1, 1930, the Metropolitan Life Insurance Company assigned the bond and mortgage for full value to the Columbia National Bank, the predecessor of plaintiff, and at the same time delivered to it the policy in question along with the other papers. Some time later the house covered by the policy was destroyed by fire; and plaintiff instituted this suit on the policy to recover thereunder. It is conceded that, prior to the fire, the policy had become void as to Anderson, the insured.

The judge below based his action in directing a verdict for defendant upon the decision of this court in Orenstein v. Star Insurance Co. of America, 10 F.(2d) 754, in which it was held that the standard mortgage clause operates as a separate and independent insurance of the mortgagee's interest, and in express terms excepts the insurance from many or all of the deeds and delinquencies of the mortgagor. He was of opinion that, because such was the nature of the mortgagee's interest under the standard clause, it could not be assigned or transferred by the mortgagee along with the note and mortgage without the consent of the insurer. We do not think, however, that this conclusion follows.

Most rights under contracts are assignable. 2 R. C. L. 598. The exception is where rights are coupled with liabilities, with contracts for personal services or with contracts involving personal confidence. Fire insurance contracts are within the class last mentioned, and are held not to be assignable because of the confidence reposed by the insurer in the owner of the property. Thus, the owner may not sell the property and transfer the policy to the purchaser along with the title; for the insurer has not agreed to insure the property in the hands of the purchaser nor to assume the hazard involved in his ownership and possession. On the other hand, an assignment, not of the policy itself with its obligations, but of the owner's rights thereunder by way of pledge or otherwise as security for a debt, is held valid, in the absence of express restriction to the contrary; and the reason for this distinction is that such pledge or assignment does not affect the personal relationship, i. e., the ownership of the property by the insured, upon the faith of which the policy has been issued. Cooley's Briefs on Insurance (2d Ed.) vol. 2, pp. 1768, 1769; Ellis v. Kreutzinger, 27 Mo. 311, 72 Am. Dec. 270; True v. Manhattan Fire Ins. Co. (C. C.) 26 F. 83; Stokes v. Liverpool & London & Globe Ins. Co., 130 S. C. 521, 126 S. E. 649.

In the simple case of pledge or assignment of a policy as security for a debt, breach of the conditions of the policy by the insured defeats the rights of the assignee or pledgee, as well as the rights of the insured himself. To protect the assignee from forfeiture from such cause, the New York standard mortgage clause was devised, providing that the interest of the mortgagee under the policy should not be invalidated by any act or neglect of the mortgagor. While, as said in the Orenstein Case, this operates as a separate and independent insurance of the mortgagee's interest, there is in reality only one contract of insurance, the contract made with the mortgagor. The mortgage clause is a provision of that contract made for the benefit of a third person, the mortgagee, upon an agreement that the rights of the mortgagee thereunder are not to be invalidated by acts or neglect of the mortgagor. The question in the case here is: Are the rights of the mortgagee in the policy and under such clause assignable without the consent of the company? It is clear that the answer to this question depends upon whether with the rights of the mortgagee under the policy is involved such a relationship of personal confidence as would result in a change in the risk or hazard as a result of the transfer.

There can be no question, of course, but that the mortgagee may transfer with his debt such rights as arise from the pledge of the policy with him, or that the assignee of the mortgagee upon such transfer has the right to enforce same. The question is the narrower one as to whether the right of the mortgagee to recover on the policy, unaffected by the acts and defaults of the mortgagor, may be thus transferred; and this involves a consideration of the nature of the mortgage clause. Does that clause evidence a particular trust and confidence in the mortgagee, or is the trust rather in the mortgagor? Does the transfer of the rights of the mortgagee increase the hazard, or substitute a different risk, or is the hazard for all practical purposes the same? We think it clear that the latter is the case. The whole of the added protection of the clause relates, not to acts and omissions of...