Fields v. Western Millers Mut. Fire Ins. Co.

• Decision Date: 15 April 1943
• Citation: 48 N.E.2d 489,290 N.Y. 209
• Parties: FIELDS v. WESTERN MILLERS MUT. FIRE INS. CO. WESTERN MILLERS MUT. FIRE INS. CO. v. FIELDS et al.
• Court: New York Court of Appeals Court of Appeals

290 N.Y. 209

48 N.E.2d 489

FIELDS

v.WESTERN MILLERS MUT. FIRE INS. CO.

WESTERN MILLERS MUT. FIRE INS. CO.

v.FIELDS et al.

Court of Appeals of New York.

April 15, 1943.

Appeal from Supreme Court, Appellate Division, Third Department.

Action by George H. Fields against the Western Millers Mutual Fire Insurance Company on two fire policies, wherein the defendant filed a counterclaim against the plaintiff and Ellis R. Lake. From two judgments entered respectively in favor of George H. Fields and in favor of Ellis R. Lake, upon two orders of the Appellate Division of the Supreme Court, 265 App.Div. 891, 37 N.Y.S.2d 757, which affirmed, by a divided court, two orders of the court at Special Term, McNaught, J., granting separate motions for a dismissal of the counterclaim, the defendant appeals.

Affirmed.

CONWAY, J., LEHMAN, C. J., and LEWIS, J., dissenting. C. Addison Keeler, of Binghamton, for appellant.

Norman M. Pinsky, of Syracuse, and Harry Hantor, of Endicott, for respondents.

DESMOND, Judge.

Plaintiff Fields sues on two policies of insurance issued to him by defendant Western Millers Mutual Fire Insurance Company. The complaint describes the two policies as insuring Fields against loss by fire damage to his automobile truck and trailer respectively, then alleges that there was damage by fire to both vehicles while the policies were in effect, and that defendant failed to pay. The insurer's answer contains, besides certain defenses, a counterclaim against said Fields and against one Lake, which counterclaim has, on the motion of said Fields and Lake, been stricken out for insufficiency. We concern ourselves only with the question of the sufficiency of that counterclaim.

The counterclaim has to do only with the insurance policy covering the tractor. It alleges that the policy was issued to Fields ‘as assured’ with a provision that any loss by fire damage should be paid to said Fields as assured and Autocar Sales & Service Company, Inc., ‘as their interests may appear.’ The Autocar Company, says the counterclaim, was the unpaid vendor of the tractor. The policy contained a notation to the effect that there was an encumbrance on said tractor to said Autocar Company in the amount of $1,000. Further describing this policy, which is not in the record, the counterclaim asserts that in the policy there was a provision that ‘Autocar Sales & Service Company, Inc., would receive notice in writing of any cancellation of the policy.’ The counterclaim informs us that assured Fields failed to pay the premium and that the insurer thereupon proceeded, before the date of the fire, to cancel the policy by notice to Fields but failed (apparently by inadvertence) to give any such notice to the Autocar Company. By reason of this oversight, alleges the insurer, the policy at the time of the fire was cancelled as to Fields but in full force and effect as to the Autocar Company. The counterclaim then describes the transaction whereby Fields had acquired the tractor from the Autocar Company, attaching as an exhibit the conditional sale agreement between those two parties. That contract, in conventional form, required the payment by Fields to the Autocar Company, of $1,612.50, secured by notes maturing on various dates. By that instrument Fields, the purchaser, agrees to keep the tractor insured against fire by insurance payable to the vendor as its interest may appear. It is further alleged in the counterclaim that one Ellis R. Lake, against whom, as well as Fields, the counterclaim demands judgment, was a co-maker of the notes given as security for payment of the purchase price, although Lake was not a vendee and not an insured under the policy. The counterclaim alleges a default by Fields and Lake on the notes, resulting in an overdue indebtedness, at the time of the fire, of $933.48. The fire damage, according to the counterclaim was $1,008.48, by reason of which, pleads the insurer, the latter became obligated to pay to the Autocar Company, but not to Fields, on the policy, the sum of $933.48, representing the balance due on the conditional sale contract. That sum, says the insure, it paid to the Autocar Company pursuant to the policy. Thereupon the Autocar Company assigned to the insurer its (vendor's) rights under the conditional sale contract. As a result of all of this, says the counterclaim, the insurer became by subrogation the owner of a claim against Fields and Lake in the amount of $933.48.

Fields and Lake, moving to dismiss the counterclaim, argue that the payment by the insurer to the Autocar Company was a payment under the policy in which Fields was the insured and that such payment operated to Fields' benefit so as to pay and extinguish the Autocar Company's claim under the conditional sale contract. For that reason, and because there is no subrogation clause in the insurance policy, they argue, no subrogation resulted but instead the conditional sale contract was paid off, and the assignment by the Autocar Company was a futility, accomplishing nothing. We agree with that position, as did the courts below, and hold that the insurer by making the payment to the Autocar Company, and by taking the assignment from that company, acquired no rights against Fields (or against Lake) since Fields was, and remained, the insured under the policy, so long as the policy remained in existence. The decisions in this court which require that result are numerous, and, we think, plain in their holdings and in their applicability to this situation. (Throughout this opinion we use ‘conditional vendor’ and ‘mortgagee’ interchangeably, since the rules of law we are examining are applicable to either.)

When an insurance policy names the owner of goods as the insured, with a ‘loss payable to mortgagee’ clause, and there is no other provision as to the mortgagee or in his favor, the mortgagee is a mere nominee of the owner-insured to receive the insurance moneys. Grosvenor v. Atlantic Fire Ins. Co., 17 N.Y. 391. When a policy contains additional language to the effect that it is issued to the owner and the mortgagee ‘as their interests may appear,’ then there is recognized and covered also, the insurable interest of the mortgagee, to the extent of his interest ( Mussey v. Atlas Mut. Ins. Co., 14 N.Y. 79); to that extent the insurance is for the mortgagee's benefit. Pitney v. Glen's Falls Ins. Co., 65 N.Y. 6. In the absence of a subrogation clause (and there is none in this case) the rule is that a payment to a mortgagee under such a policy is a payment pro tanto of the mortgage debt. Kernochan v. New York Bowery F. Ins. Co., 17 N.Y. 428. Such a policy accomplishes an insurance of the property and not of the debt, and the only importance of the debt is that it gives the mortgage an insurable interest in the property. ‘The plaintiff held the policy as further security for the debt to apply upon the debt whatever should be received on the policy. Having this effect, the agreement precluded a resort by the defendants (the insurers), on paying the loss, to the bond and mortgage, by way of subrogation, for their reimbursement.’ Kernochan case, supra, 17 N.Y. at page 434. That the Kernochan case states the applicable rule where the policy contains no subrogation clause is made plain by the very cases which, because of the presence of subrogation clause in the policies, arrive at a different result. The leading case of that type (Foster v. Van Reed, 70 N.Y. 19, 26,26 Am.Rep. 544), says: ‘The authorities cited to sustain this position (i. e., the position taken by Fields here) are cases where there was no agreement as to subrogation, and do not establish such a proposition in cases in which there was a clause in the policy, authorizing an assignment in case of loss.’ Such a subrogation clause, if not found in the policy, cannot be supplied. A clause to accomplish such a purpose appears in the ‘Standard fire in surance policy of the State of New York’ (printed at length in s 168, Insurance Law, Consol.Laws, c. 28, see lines 67 to 85, see Goldstein v. National Liberty Ins. Co. of America, 256 N.Y. 26, 30, 175 N.E. 359). This court (in another connection) has held that even where, as in the policy before us, the loss is made payable to the mortgagee as interest may appear, nonetheless the so-called standard mortgagee clause, subrogating the insurer to the mortgagee's rights on payment to him, cannot be read into the policy by implication. Hessian Hills Country Club, Inc., v. Home Ins. Co., 262 N.Y. 189, 186 N.E. 439. Some of the other cases in this court pointing out that there can be no subrogation without a subrogation clause are Benjamin v. Saratoga County Mut. F. Ins. Co., 17 N.Y. 415,Wood v. North Western Ins. Co., 46 N.Y. 421, 424,Hay v. Star Fire Ins Co., 77 N.Y. 235, 240,33 Am.Rep. 607, and Ulster County Sav. Inst. v. Leake, 73 N.Y. 161, 29 Am.Rep. 115. The Ulster County case puts it this way (73 N.Y. at page 164, 29 Am.Rep. 115): ‘if by any arrangement between the mortgagor and mortgagee, the insurance is effected for the benefit of the mortgagor, or if the mortgagor pays the premium and loss ensues, the mortgagor is entitled to the benefit of it by having it applied in payment of his mortgage.’

Of course if a policy is issued to the mortgagee, procured by him and so written as to cover his interest only, then the owner can claim no rights under it and the insurer may be subrogated as against the owner-mortgagor. Such situations are dealt with in cases like Excelsior F. Ins. Co. v. Royal Ins. Co. of Liverpool, 55 N.Y. 343, 14 Am.Rep. 271: ‘It is settled that when a mortgagee, or one in like position toward property, is insured thereon at his own expense, upon his own motion and for his sole benefit, and a loss happens to it, the insurer, on making compensation, is entitled to an assignment of the rights of the insured.’ (55 N.Y. at page 359, 14 Am.Rep. 271). But the policy we are here enforcing was not one taken out by a...