Delaware Ins. Co. of Philadelphia v. Greer

• Decision Date: 23 February 1903
• Docket Number: 1,774.
• Citation: 120 F. 916
• Parties: DELAWARE INS. CO. OF PHILADELPHIA v. GREER et al.
• Court: U.S. Court of Appeals — Eighth Circuit

120 F. 916

DELAWARE INS. CO. OF PHILADELPHIA v. GREER et al.

No. 1,774.

United States Court of Appeals, Eighth Circuit.

February 23, 1903

Syllabus by the Court.

Policies and contracts of insurance must be construed, like other contracts, according to the ordinary, popular sense of the terms they contain. The meaning of their stipulations, in their common, popular sense, is not to be discarded for some hidden meaning, that nothing but the exigency of a hard case and the ingenuity of an acute mind would discover.

The effect of the mortgage clause, 'loss, if any, payable to . . ., mortgagee, as his interest may appear,' or of words of similar import, often attached to policies of fire insurance, is to make the mortgagee the simple appointee of the mortgagor, to receive the proceeds of the amount of his interest, and to place his indemnity at the risk of every act and omission of the mortgagor that would avoid, terminate, or affect the insurance of the latter's interest under the terms of the policy.

A policy of insurance to a mortgagor, to which was attached a mortgage clause in the above form, contained these provisions: 'This entire policy unless otherwise provided by agreement endorsed hereon or added hereto shall be void * * * if with the knowledge of the insured foreclosure proceedings be commenced or notice be given of sale of any property covered by this policy by virtue of any mortgage or trust deed;' and 'if with the consent of this company, an interest under this policy shall exist in favor of a mortgagee or of any person or corporation having an interest in the subject of insurance other than the interest of the insured as described herein, the conditions hereinbefore contained shall apply in the manner expressed in such provisions and conditions of insurance relating to such interest as shall be written upon, attached, or appended thereto. ' Held:

(1) The mortgage clause expressed, more clearly than any other stipulation could have done, the provision and condition that the insurance of the mortgagees was subject to the risk of every act or neglect of the mortgagor which would avoid or terminate the latter's insurance under the original policy, because that had been the adjudicated construction of this mortgage clause for more than 40 years when it was attached to the policy.

(2) The condition of an avoidance of the policy for the commencement of foreclosure proceedings was not limited to foreclosure proceedings of which the insured had notice at the time or before they were commenced, but it covered all such proceedings, the commencement of which he acquired knowledge of at any time before the loss occurred.

S. B Amidon (J. F. Conly, on the brief), for plaintiff in error.

W. W Padgett and S. H. Barr, for defendants in error.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

SANBORN Circuit Judge.

On September 15, 1899, the Delaware Insurance Company issued its policy of fire insurance to John A. Henderson, the owner of a half interest in a building, and of the land on which it was situated, in the sum of $5,000. Henderson had made two mortgages upon the property-- one to James H. Truskett for $1,000, and one to Greer, Mills & Co., a copartnership, and the defendants in error in this case, for $5,000. The insurance policy contained this provision:

'This entire policy, unless otherwise provided by agreement endorsed hereon or added hereto, shall be void * * * if with the knowledge of the insured foreclosure proceedings be commenced or notice be given of sale of any property covered by this policy by virtue of any mortgage or trust deed.'

On February 28, 1900, Truskett commenced proceedings to foreclose his mortgage. On March 5, 1900, the summons in that suit was served upon the mortgagor, Henderson. Greer, Mills &amp Co. were defendants in that action, and on May 7, 1900, they filed an answer and cross-petition, in which they prayed for the foreclosure of their mortgage. On June 5, 1900, a decree of foreclosure of both the mortgages was made, and Greer, Mills & Co., filed a praecipe for an order of sale under that decree. On June 17, 1900, the building burned.

Before the proceedings in foreclosure were commenced, the insurance company, at the request of the mortgagees, had attached to its policy the following clauses:

'Loss, if any, payable to James H. Truskett, mortgagee, as his interest may appear. ' 'Loss, if any, under this policy, payable to Greer Mills Live Stock Commission Company, as their interest may appear, subject to a prior mortgage held by James H. Truskett.'

The insurance company had no notice or knowledge of the foreclosure proceedings until after the fire. Greer, Mills & Co. brought an action on the policy to recover for the loss which they sustained by the fire.

The statement of these facts creates a strong impression that the insurance company was not liable under the contract upon which this action was based. Their agreement reads that, if foreclosure proceedings be commenced with the knowledge of the insured, the policy shall be void, unless otherwise provided by agreement indorsed thereon or added thereto. There was no other provision by any such agreement. Foreclosure proceedings were commenced. The insured knew that they had been commenced weeks before the fire. Is it not the logical conclusion that the policy was void when the fire occurred? The court below answered this question in the negative, and counsel for the defendants in error seek to sustain its conclusion upon three grounds:

Their first proposition is that the mortgagees, Greer, Mills & Co. were excepted from the operation of the foreclosure provision of the policy. They argue that a mortgage is an incident of a debt; that the right to foreclose is an attribute of a mortgage; that, when the insurance company agreed that the loss should be paid to the mortgagees as their interest might appear, they thereby consented to the exercise by them of their right to foreclose; and from these premises they draw the conclusion that the mortgagees were thereby excepted from the provision of the policy that it should be void if foreclosure proceedings were commenced with the knowledge of the insured. The soundness of the premises upon which counsel base their contention is conceded, but the alleged conclusion does not follow. On the other hand, the plain reading of the clauses of the policy is, and the evident intention of the parties to the contract was, in the first place, to concede the right of the mortgagees to foreclose their mortgage, and, in view of this situation, to clearly provide what the rights and relations of the parties should be if the mortgagees exercised their right to commence their proceedings to foreclose. The parties to the policy, in other words, recognized the right of the mortgagees to enforce the terms of their mortgage, and provided, in plain terms, that if they commenced proceedings for that purpose, and these proceedings came to the knowledge of the insured, the policy should be void. That this is the true construction of the contract is evident both from the customary meaning of its terms, and from the fact that at the time it was made there were two mortgage clauses in common use-- the one here selected, which subjects the insurance of the mortgagee to the risk of all the acts and omissions of the mortgagor, and the union mortgage clause, which, in express terms, excepts the insurance...