Fidelity-Phenix Fire Insurance Co. v. Garrison

• Decision Date: 14 December 1931
• Docket Number: Civil 3094
• Citation: 39 Ariz. 277,6 P.2d 47
• Parties: FIDELITY-PHENIX FIRE INSURANCE COMPANY, a Corporation, Appellant, v. I. L. GARRISON and D. E. SMITH, Who Sues for the Benefit of I. L. GARRISON, Appellees
• Court: Arizona Supreme Court

6 P.2d 47

39 Ariz. 277

FIDELITY-PHENIX FIRE INSURANCE COMPANY, a Corporation, Appellant, v. I. L. GARRISON and D. E. SMITH, Who Sues for the Benefit of I. L. GARRISON, Appellees

Civil No. 3094

Supreme Court of Arizona

December 14, 1931

APPEAL from a judgment of the Superior Court of the County of Maricopa. M. T. Phelps, Judge. Cause reversed and new trial ordered.

Messrs Stockton & Perry, Mr. E. G. Frazier, Mr. Stanley A. Jerman and Mr. Thomas P. Riordan, for Appellant.

Mr John W. Ray, for Appellees.

OPINION

ROSS, J.

This action was brought by D. E. Smith and I. L. Garrison to recover on an insurance policy issued on February 14, 1930, by the defendant Fidelity-Phenix Fire Insurance Company to D. E. Smith, with the provision attached thereto that loss or damage, if any should be paid to I. L. Garrison, mortgagee, as his interests might appear. It was a standard New York policy, and the rider attached thereto was the standard "union mortgage clause."

The property was described in the mortgage and policy as a one-story, shingle roof, brick building, located on the extreme southwest corner of section -- , in township 1 North, Range 3 East, Maricopa county, Arizona, whereas in fact it was located on the W. 1/2 of the S.W. 1/4 of the S.E. 1/4 of section 30, said township and range.

At the time the policy was issued, there were two mortgages against the property, one to Thomas Welsh for $3,000, overdue, and one to Beatrice B. Formsby for $5,000, and the latter was being foreclosed.

Smith had obtained a policy or policies in other insurance companies providing that loss or damage, if any, was payable to Welsh, as his interests might appear, which policy or policies were in effect on February 14, 1930, the date of the issuance of the present policy. There was evidence that the insured, Smith, represented to the agent of the defendant that the Garrison mortgage for $2,000 was a first mortgage. The policy so recited. March 8, 1930, the building insured was destroyed by fire.

The defendant's defense is that plaintiffs had failed to disclose to defendant the existence of the Welsh and Formsby mortgages, or the policy of insurance on the property in favor of Welsh, or that the Formsby mortgage was in the course of foreclosure, thereby concealing from defendant material facts. Also that plaintiff Garrison did not have an insurable interest in the premises and did not have a mortgage lien thereon; that said mortgage lien was simulated for the purpose of defrauding defendant; that defendant relied upon plaintiffs' representations as to unencumbered title and the bona fides of mortgage to Garrison and issued the policy; that the mortgaged property was not worth to exceed the Welsh and Formsby mortgages. It is alleged that, in further pursuance of the plaintiffs' conspiracy to defraud defendant, the plaintiff Smith, on March 8, 1930, caused the insured building to be destroyed by fire, and thereafter plaintiffs fraudulently presented proof of loss and demanded of defendant the sum of $1,700 the face of the policy. In other words, the defense is that plaintiff Smith did not owe plaintiff Garrison; that the mortgage insured against was simulated; that the defendant was deceived by plaintiffs into believing that there were no other encumbrances on the property; that Garrison participated in this deceit and assisted in obtaining the policy and that thereafter plaintiff Smith burned the property to carry out the conspiracy and to defraud defendant.

At the close of the case, both plaintiffs and defendant moved for an instructed verdict, and plaintiffs' motion was granted. The verdict was for $1,771.40, the face value of the policy and interest from date of filing complaint, plus statutory penalty of 15 per cent., or $255. Judgment was entered for such sums, and $250 attorneys' fees.

The defendant has appealed, and, for reasons, assigns several errors. We shall largely confine ourselves to determining if under the state of the evidence the court was right in directing a verdict for the plaintiffs.

The defendant's answer and its evidence in support thereof were directed in part to proving that the insured, Smith, had concealed certain material facts in order to obtain the policy, and that Garrison, the mortgagee, was cognizant of such concealment of facts and affected thereby. Before we inquire into the soundness of defendant's position, we state the rule that should guide the court in passing on a motion for a directed verdict to be that the evidence is to be taken in its strongest light against the movant. The party against whom the motion is directed is entitled to the benefit of every inference that might justifiably be drawn from the evidence, and it is only when all the evidence with all such inferences is insufficient to support a verdict in his favor that the court may direct a verdict against him. Stanfield v. Anderson, 5 Ariz. 1, 43 P. 221; Root v. Fay, 5 Ariz. 19, 43 P. 527; Roberts v. Smith, 5 Ariz. 368, 52 P. 1120; Haff v. Adams, 6 Ariz. 395, 59 P. 111; Haupt v. Maricopa County, 8 Ariz. 102, 68 P. 525; White Sewing-Machine Co. v. Bradley, 16 Ariz. 338, 145 P. 725; Arizona Binghampton Copper Co. v. Dickson, 22 Ariz. 163, 44 A.L.R. 881, 195 P. 538; Hines v. Gale, 25 Ariz. 65, 213 P. 395; Smith v. Elder, 30 Ariz. 144, 245 P. 274; Cadle v. Helfrich, 36 Ariz. 390, 286 P. 186; Lazear v. Pendergrass et al., ante, p. 111, 4 P.2d 386.

The trial court took the view, and we think very correctly, that the insertion contained in the policy commonly referred to as the "union mortgage clause" created a new relation between the insurer and the mortgagee, namely, that of insurer and insured, independent of the contract with the mortgagor. As is said in Federal Land Bank v. Globe & Rutgers Fire Ins. Co., 187 N.C. 97, 121 S.E. 37:

"With respect to the rights of the mortgagee under the standard mortgage clause, it is the generally accepted position that this clause operates as a separate and distinct insurance of the mortgagee's interest, to the extent, at least, of not being invalidated by any act or omission on the part of the owner or mortgagor, unknown to the mortgagee, and, according to the clear weight of authority, this affords protection against previous acts as well as subsequent acts of the assured. Hastings v. Westchester Fire Ins. Co., 73 N.Y. 141; Smith v. Union Ins. Co., 25 R.I. 260, 55 A. 715, 105 Am. St. Rep. 882; Gilman v. Com. Ins. Co., 112 Me. 528, 92 A. 721, L.R.A. 1915C 758, and note; Brecht v. Law Union & Crown Ins. Co., 160 F. 399, 87 C.C.A. 351, 18 L.R.A. (N.S.) 197, and note; Germania Fire Ins. Co. v. Bally, 19 Ariz. 580, 173 P. 1052, 1 A.L.R. 488; 14 R.C.L. 1085."

In the Germania case supra, we said:

"We think the mortgage, when a policy is presented to him with a standard mortgage clause attached thereto in his favor, is justified in assuming that the insurance company has satisfied itself that the policy is valid and free from impeachment for any conduct or act of the assured at its inception or prior to the attachment of the mortgage clause. The authorities are not agreed on this proposition, but we think the better reason is with those that hold the rights of the mortgagee are unaffected by any act or neglect of the insured as well before the attachment of the mortgage clause as afterward."

This rule does not mean, however, that the mortgagee may himself participate in the act or neglect of the insured, or take no notice or concern himself if he knows of it. The mortgagee's rights and position are well defined in Union Trust Co. v. Philadelphia Fire & Marine Ins. Co., 127 Me. 528, 145 A. 243, as follows:

"But in reason and based on the authorities, a mortgagee under such a clause [union mortgage clause] is protected only where the act or neglect of the mortgagor or owner is unknown to him. Eddy v. L.A. Corp., 143 N.Y. 311, 324 38 N.E. 307, 25 L.R.A. 686; Syndicate Ins. Co. v. Bohn, (C.C.A.) supra, 65 F. 165, 177, 27 L.R.A. 614; Genesee Falls P. Sav. & L. Assn. v. United States Fire Ins. Co., 16 A.D. 587, 44 N.Y.S. 979, 981; Cooley's Briefs on Insurance, 2d ed., p. 2391....