Eddy v. London Assur. Corp.

• Decision Date: 09 October 1894
• Citation: 38 N.E. 307,143 N.Y. 311
• Parties: EDDY v. LONDON ASSUR. CORP. et al. Same v. LIBERTY INS. CO. OF NEW YORK CITY et al. SAME v. FIRE ASS'N OF PHILADELPHIA et al. SAME v. PHENIX INS. CO. OF HARTFORD et al. SAME v. WESTCHESTER FIRE INS. CO. OF NEW YORK et al. SAME v. NEW YORK BOWERY FIRE INS. CO. et al. SAME v. WILLIAMSBURGH CITY FIRE INS. CO. et al. SAME v. FIRE INS. ASS'N OF LONDON et al.
• Court: New York Court of Appeals Court of Appeals

143 N.Y. 311

38 N.E. 307

EDDY

v.LONDON ASSUR. CORP. et al.

Same

v.LIBERTY INS. CO. OF NEW YORK CITY et al.

SAME

v.FIRE ASS'N OF PHILADELPHIA et al.

SAME

v.PHENIX INS. CO. OF HARTFORD et al.

SAME

v.WESTCHESTER FIRE INS. CO. OF NEW YORK et al.

SAME

v.NEW YORK BOWERY FIRE INS. CO. et al.

SAME

v.WILLIAMSBURGH CITY FIRE INS. CO. et al.

SAME

v.FIRE INS. ASS'N OF LONDON et al.

Court of Appeals of New York.

Oct. 9, 1894.

OPINION TEXT STARTS HEREAppeal from supreme court, general term, fourth department.

Action by Fred C. Eddy, as receiver of the Syracuse Screw Company, against the London Assurance Corporation and Giles Everson, and seven other actions against other insurance companies and said Everson. From a judgment of the general term (20 N.Y.Supp. 216) affirming judgments in each case for defendant Everson the insurance companies appeal.

Affirmed.

A.H. Sawyer, for applicants.

Watson M. Rogers, for respondent.

PECKMAN, J.

The plaintiff commenced the above action against the corporation defendant upon a policy of fire insurance issued by the company by which plaintiff, as receiver, was insured against loss or damage by fire on certain property situated in Syracuse, and formerly owned by the screw company, of that city. The defendant Everson was insured in the same policy as mortgagee, as his mortgage interest might appear. He was joined as defendant, in order that the whole controversy might, as between all the parties, be settled at once. Actions were also commenced against several other insurancecompanies by the plaintiff, as receiver, at the same time, and to recover upon policies covering substantially the same premises. The questions arising affect generally all the insurance companies, although one or two of such questions are not raised in all the policies. The plaintiff failed to recover, and his complaint was dismissed in the courts below because of the violation of provisions in the policies in regard to procuring other insurance without the companies' consent, and also because of the plaintiff's permitting foreclosure proceedings to be commenced to foreclose certain mortgages upon the insured premises. The plaintiff has not appealed. The defendant Everson and the corporations defendant served cross answers upon each other, Everson contending that he should be allowed to recover from the companies to the extent of his policies upon his mortgage interest in the premises, while the companies set up several defenses to such claim, which will be noticed hereafter. The cases were referred for trial, and the referee reported in favor of Everson as against the insurance companies, and the judgments were affirmed at the general term of the supreme court after a slight modification as to the amounts of the recovery, and the insurance companies have appealed to this court.

The only questions to be determined arise between defendant Everson and the companies. By the judgment entered upon the report of the referee it is provided in all cases that the insurance companies of making payment of the loss are entitled to be subrogated to the rights of the mortgagee, but such subrogation is not to impair the mortgagee's right to enforce the collection of his claim in full against the principal debtor, nor by means of any collateral security he may hold. This was placed in the judgments in accordance with the reports of the referee.

1. The companies urge that defendant Everson, the mortgagee, having foreclosed the mortgages upon the premises, and sold the same under his judgment of foreclosure and sale subsequent to the time of the fire, has thereby put it out of his power to subrogatethem to the rights which he had under the securities held by him at the time of the fire, and he therefore cannot recover in this action against them. It appears that the Syracuse Screw Company was the original owner of the premises, and it had given three several mortgages thereon,-one dated August 13, 1881, for $4,500; one dated November 3, 1883, for $14,000; another dated June 30, 1885, for $10,000. The defendant Everson, on the 9th day of June, 1888, was the owner of all of these mortgages, and on that day commenced one action against the screw company to foreclose them. On the 23d of June, 1888, the screw company was dissolved, and Eddy was appointed the receiver. The company was wholly insolvent, and had no property other than the mortgaged premises. In July, 1883, Eddy, as receiver, duly appeared in the foreclosure action, and served an answer setting up a defense to the $10,000 mortgage. On the 4th of December, 1888, a fire occurred by which the property covered by the policies was damaged, and appraisers were appointed on the 18th of December, and on the 21st of December, 1888, they made their award by which they determined the damage resulting to the property from the fire to have been $10,102.90. The companies refused to pay Eddy on the grounds already stated. Everson severed his foreclosure action after Eddy put in his answer setting up a defense as to one of the mortgages, and on the 17th of December, 1888, obtained judgment by default for the foreclosure of the $4,500 and $14,000 mortgages, and decreeing a sale of the premises in satisfaction thereof. Subsequent to the fire, and on the 9th of January, 1889, the property was sold under the foreclosure judgment for the sum of $15,400, leaving a deficiency on those two mortgages, including interest and costs of, of $4,921.86.

Each of the policies of insurance had a provision therein known as the “New York Standard Mortgage Clause,” and under it the loss, if any, was made payable to defendant Everson, as his mortgage interest might appear. The clause contained a provision that the insurance of Everson's interest should not be invalidated by any act or neglect of the mortgagoror owner of the property, nor by any foreclosure or other proceedings or notice of sale relating to the property. The clause also contained the further provision that “whenever this company shall pay the mortgagee (or trustee) any sum for loss or damage under this policy, and shall claim that, as to the mortgagor or owner, no liability therefor 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 (or trustee) 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 (or trustee) to recover the full amount of his claim.” The companies did claim that, as to the owner of the premises, no liability existed. They never in any manner consented to the institution of foreclosure proceedings. At the time when they were commenced-June, 1888-no fire had occurred, and the defendant Everson was acting strictly within his legal rights when he commenced them. It must be assumed that the commencement of the foreclosure proceedings terminated any interest which Eddy might have had in the policies up to that time. There was, however, a separate and wholly distinct insurance of the interest of Everson in the property, and by the terms of that contract of insurance it was not to be affected by any act or neglect of the mortgagor or owner of the property, or by any foreclosure of other proceedings, or notice of sale relating to the property. The act which forfeited the interest of the owner in a policy was not to affect the interest of the mortgagee. Consequently the mortgagee violated no contract on his part when he commenced the proceedings to foreclose his mortgage, and thus endeavored to collect his debts. Before he had proceeded so far as a judgment of foreclosure, a fire occurred. What was he to do? Was he bound to stay further proceedings, and accept payment of the amount of his insurance, and then assign to the extent of such payment his rights in the mortgages to the companies? We think not. Such is not the meaning of the clause when read as a whole. Foreclosure proceedings were not to affect his rights. This was expressly provided for and agreed to. Although there was an agreement to subrogate, yet that agreement was also upon the condition that subrogation should not impair the mortgagee's right to recover the full amount of his claims. The two rights must be considered together, and, though subrogation, under certain circumstances, may, under the agreement, be insisted upon, yet, unless payment of his mortgage debt is made, the mortgagee must have the right to proceed with the foreclosure and to a sale of the premises, for otherwise it could not be seen whether a subrogation prior to a sale would not impair his right to recover the full amount of the claim of the mortgagee.

If the insurers desired an immediate subrogation, then they had a right, by the terms of their contract, to pay the whole debt, and take an assignment of the bond and mortgage and whatever other securities the mortgagee might have for the payment of his whole claim, otherwise the insurers must wait if the mortgagee desire to continue the foreclosure. The right of the mortgagee to recover his full claim might be pretty...