Citizens State Bank of Clare v. State Mut. Rodded Fire Ins. Co. of Mich.

• Decision Date: 11 June 1936
• Docket Number: No. 37.,37.
• Citation: 276 Mich. 62,267 N.W. 785
• Parties: CITIZENS STATE BANK OF CLARE v. STATE MUT. RODDED FIRE INS. CO. OF MICHIGAN.
• Court: Michigan Supreme Court

276 Mich. 62

267 N.W. 785

CITIZENS STATE BANK OF CLARE

v.STATE MUT. RODDED FIRE INS. CO. OF MICHIGAN.

No. 37.

Supreme Court of Michigan.

June 11, 1936.

Action by the Citizens State Bank of Clare, Michigan, against the State Mutual Rodded Fire Insurance Company of Michigan. From a judgment for the plaintiff, the defendant appeals.

Reversed, and new trial granted.

Appeal from Circuit Court, Clare County; Ray Hart, Judge.

Argued before the Entire Bench.

Leibrand & Leibrand, of Bay City, for appellant.

Thomas Carl Holbrook of Clare (O'Keefe & O'Keefe, of Saginaw, of counsel), for appellee.

BUTZEL, Justice.

Early in 1929 Bart Barrus purchased an 80-acre farm improved with a house and barn near Clare, Mich. The property was encumbered with a mortgage of $1,000 and another of $500, both running to plaintiff bank. Barrus' parents-in-law were living on the property, and he was anxious to get them off the premises without any family quarrel. This could be accomplished with less friction through the medium of a stranger than by a member of the family. Therefore, Barrus and wife gave a warranty deed of the property to Orval Vanderwarker with the verbal understanding on his part that he would execute a reconveyance to his grantors at their request. On March 3, 1930, defendant insurance company issued to Vanderwarker a policy insuring the house for $1,000 and the barn for $500 and containing a notation that it was issued in lieu of a policy with another company. It is urged by defendant that Barrus, now deceased, signed Vanderwarker's name to the application, and Vanderwarker's testimony confirms that contention. The company, however, granted the application after due investigation, and mailed the policy to Vanderwarker, who accepted it and delivered it to the bank. On June 9, 1930, some three months later a rider was attached to the policy containing what is commonly known as the ‘standard’ or ‘union’ type of mortgage clause, the pertinent part of which is set forth in the margin of this opinion.¹

On October 24, 1930, the house was destroyed by fire of an unknown origin. Almost three weeks elapsed before the insurance company received written notice of the loss, although the president of the bank informed defendant's agent of the fire a few days after it occurred. Vanderwarker, who was made codefendant, disclaimed all interest in the property and the insurance. He had reconveyed the property to Barrus some time prior to the institution of the present suit. Ten months after the declaration was filed, Barrus deeded the property to the bank and five weeks later Vanderwarker did the same. The trial judge who heard the case without a jury rendered judgment for $1,000 and interest against the insurance company and denied it the right of subrogation. The insurance company has appealed.

Appellant claimed that Vanderwarker had no insurable interest in the property and therefore the insurance was void from its inception. It is argued by plaintiff, however, that Vanderwarker had absolute title to the property when the insurance was taken out and also at the time of the fire. A parol promise on the part of a grantee to reconvey is void under the statute of frauds, even though under certain circumstances the grantor might obtain equitable relief. Poppe v. Poppe, 114 Mich. 649, 72 N.W. 612,68 Am.St.Rep. 503. At the time the insurance was taken out, Vanderwarker had at least a bare title. This, of itself, is sufficient to constitute an insurable interest. Quackenbush v. Citizens' Ins. Co., 150 Mich. 555, 114 N.W. 388. The statement in Cooley on Insurance (2d Ed.) p. 224, that ‘a trustee although he has no personal interest in the property yet has an insurable interest,’ is supported by many cases. Fray v. National Fire Ins. Co. of Hartford, 341 Ill. 431, 173 N.E. 479;Howard Fire Insurance Co. v. Chase, 5 Wall. 509, 18 L.Ed. 524;Lane v. Maine Mut. Fire Ins. Co., 12 Me. 44, 28 Am.Dec. 150;Washington Fire Ins. Co. v. Kelly, 32 Md. 421, 3 Am.Rep. 149;Rhode Island Underwriters' Ass'n v. Monarch, 98 Ky. 305, 32 S.W. 959; Babson v. Thomaston Mut. Fire Ins. Co., Fed.Cas.No. 704; Goodall v. New England Mut. Fire Ins. Co., 25 N.H. 169;Cummings v. Dirigo Mut. Fire Ins. Co., 112 Me. 379, 92 A. 298; 3Bogert, Trusts, § 599.

Appellant, however, contends that even if Vanderwarker had an insurable interest, nevertheless the policy was obtained through fraudulent representations in the application as to the kind of title and amount of encumbrance and that for this reason it had a good defense as to Vanderwarker and as to the plaintiff bank. Much of the confusion in the case can be cleared by an understanding of the particular type of mortgage clause in the instant case, specifically the phrase: ‘* * * loss or damage * * * shall be payable to the Citizens State Bank * * * as * * * mortgagee (or trustee), as interest may appear, and this insurance, as to the interest of the mortgagee * * * only therein, shall not be invalidated by any act or neglect of the mortgagor or the owner of the within described property.’ The effect of this clause has been the subject of much litigation, and the conclusion derived is well stated in 5 Couch, Insurance Law, § 1215 B: ‘The so-called ‘standard’ or ‘union’ mortgage clause, making the mortgagee payee, and stipulating that the insurance shall not be invalidated by the mortgagor's acts or neglect, constitutes an independent contract between said mortgagee and insurer, and in such case the subject-matter of the insurance is the mortgagee's insurable interest, and not the real estate, and the risk will not be avoided by any acts, representations, or omissions of the mortgagor or owner, whether done or permitted prior or subsequently to, or at the time of, the issuance of the policy.' Since the case of Hastings v. Westchester Fire Ins. Co., 73 N.Y. 141, the courts have declared this to be a separate contract between insurer and mortgagee and not subject to most of the defenses which the insurer might have against the mortgagor. Syndicate Ins. Co. v. Bohn, 65 F. 165, 27 U.S.App. 564, 12 C.C.A. 531, 27 L.R.A. 614;Home Loan & Finance Co. v. Fireman's Fund Ins. Co., 221 Ala. 529, 129 So. 470;Fidelity-Phenix Fire Ins. Co. v. Garrison, 39 Ariz. 277, 6 P.(2d) 47; National U. F. Ins. Co. v. Henry, 181 Ark. 637, 27 S.W.(2d) 786;Seccombe v. Glen Falls Ins. Co., 45 Cal.App. 611, 188 P. 305;Southern States F. & C. Ins. Co. v. Napier, 22 Ga.App. 361, 96 S.E. 15;Critchlow v. Reliance M. Ins. Ass'n, 198 Iowa, 1086, 197 N.W. 318;Traders' Ins. Co. v. Pacaud, 150 Ill. 245, 37 N.E. 460,41 Am.St.Rep. 355;Metropolitan Life Ins. Co. v. Mennonite M. F. Ins. Co., 131 Kan. 628, 293 P. 402;Remedial System of Loaning v. New Hampshire F. Ins. Co., 227 Ky. 652, 13 S.W.(2d) 1005;City Five Cents Sav. Bank v. Pennsylvania Fire Ins. Co., 122 Mass. 165;Magoun v. Firemen's Fund Ins. Co., 86 Minn. 486, 91 N.W. 5,91 Am.St.Rep. 370;Allen v. St. Paul Fire & M. Ins. Co., 167 Minn. 146, 208 N.W. 816;Union Trust Co. v. Philadelphia F. & M. Ins. Co., 127 Me. 528, 145 A. 243;Hanover F. Ins. Co. v. Bohn, 48 Neb. 743, 67 N.W. 774,58 Am.St.Rep. 719;Goldstein v. National Liberty Ins. Co., 256 N.Y. 26, 175 N.E. 359;Savarese v. Ohio Farmers' Ins. Co., 260 N.Y. 45, 182 N.E. 665, 91 A.L.R. 1341;Federal Land Bank v. Atlas Assur. Co., 188 N.C. 747, 125 S.E. 631;Beaver Falls Bldg. & Loan Ass'n v. Allemania Fire Ins. Co., 305 Pa. 290, 157 A. 616;Smith v. Union Ins. Co., 25 R. I. 260, 55 A. 715,105 Am.St.Rep. 882;Orenstein v. New Jersey Ins. Co., 131 S.C. 498, 500, 127 S.E. 570;Bank of Ipswich v. Harding County, etc., Ins. Co., 55 S.D. 261, 225 N.W. 721, 63 A.L.R. 925;Wagner v. Peters, 142 Va. 412, 128 S.E. 445;Oregon Mortgage Co. v. Hartford Fire Ins. Co., 122 Wash. 183, 210 P. 385;Fayetteville Bldg. & Loan Ass'n v. Mutual Fire Ins. Co., 105 W.Va. 147, 141 S.E. 634; British Assur. Co. v. Mid-Continental Life Ins. Co. (Tex.Com.App.) 37 S.W. (2d) 742;Burns v. Insurance Co. of Pennsylvania (Mo.App.) 224 S.W. 96. Consequently, since the clause operates as a separate and distinct contract of insurance upon the mortgagee's interest, it gives the mortgagee such an independent status as might authorize a recovery on the policy by him even though the mortgagor were precluded.

In the instant case, the defendant argues that Barrus made certain misrepresentations in his application for the policy. He represented that there was only a mortgage of $1,000 on the property, whereas, in reality, the total amount of the encumbrances was $1,400. Moreover, the true state of Vanderwarker's title was not set forth. Assuming...