Goldstein v. Nat'l Liberty Ins. Co. of America

• Decision Date: 24 March 1931
• Parties: GOLDSTEIN v. NATIONAL LIBERTY INS. CO. OF AMERICA et al.
• Court: New York Court of Appeals Court of Appeals

256 N.Y. 26

175 N.E. 359

GOLDSTEIN

v.NATIONAL LIBERTY INS. CO. OF AMERICA et al.

Court of Appeals of New York.

March 24, 1931.

Action by Morris J. Goldstein against the National Liberty Insurance Company of America and another. From an order of the Appellate Division (228 App. Div. 833, 240 N. Y. S. 883), reversing on the law and the facts a judgment of the Trial Term (jury trial) dismissing the complaint upon the merits and granting a new trial (134 Misc. Rep. 90, 234 N. Y. S. 40), defendant named appeals.

Affirmed.

Appeal from Supreme Court, Appellate Division, Second department.

Louis S. Posner, Maurice Finkelstein, and Samuel Markle, all of New York City, for appellant.

Frank C. Laughlin, Joseph W. Kirkpatrick, and Stewart W. Bowers, all of New York City, for respondent.

POUND, J.

This is an action on a policy of fire insurance brought by plaintiff as mortgagee under a standard mortgagee clause, of real property in Nassau county, to recover for a fire loss thereon. The title to the premises was in the individual ‘Abraham B. Schlowsky.’ The insurance policy insured the corporation ‘A. B. Schlowsky, Inc.’ although the individual was the owner of the corporate stock. The buildings were described in the policy as ‘in course of construction.’ The insurer defends on the ground of breach of warranty (1) in that the interest of the insured was other than that of unconditional and sole ownership, and (2) in that the buildings were not ‘in course of construction’ in that construction work had been abandoned thereon for a period of five months before the policy was issued. The trial court dismissed the complaint on the ground that the defense of breach of warranty that the buildings were ‘in course of construction’ was established. 134 Misc. Rep. 90, 234 N. Y. S. 40. The Appellate Division reversed on the ground that ‘there were facts presented which required the submission of the case to the jury.’ 228 App. Div. 833, 240 N. Y. S. 883, 884.

If we were to proceed on the theory that a policy of fire insurance, invalid in its inception as to the insured by reason of breach of warranty as to ownership and nature of occupancy, was invalid as to the mortgagee under the standard mortgagee clause, we might find at least two questions of fact for the jury: (a) Is the corporation so completely an entity, apart from the individual owner of its stock, as to prevent a recovery on the policy by the individual who own all or substantially all the stock? (b) Were the buildings correctly described as ‘in course of construction’ when construction had been suspended for a considerable period from lack of funds to continue the work?

But these questions fade out of the case if we hold as matter of law that the standard mortgagee clause creates an independent contract of insurance for the separate benefit of the mortgagee which is valid and enforceable in its inception and so continues until rendered invalid by a subsequent act or neglect of the mortgagee.

The gradual evolution of the mortgagee's rights may be traced in the reports. In Grosvenor v. Atlantic Fire Ins. Co., 17 N. Y. 391, it was held under the old clause reading ‘loss if any payable to X as his mortgage interest may appear,’ that where a fire insurance policy names the owner of the property as the person insured and declares the damages in case of loss to be payable to another person therein named as mortgagee, the latter cannot recover in case of a breach of the conditions of the policy by the mortgagor. So when the insured had conveyed the property after the policy had been issued he had no insurable interest at the time of the fire and no claim for indemnity and the mortgagee stood in no better position. ‘The mortgagor must sustain a loss for which the insurers were liable, before the party appointed to receive the money would have a right to claim it.’ Page 395 of 17 N. Y.

The standard mortagee clause is drawn more adequately to protect the mortgagee. It provides:

‘Loss or damage, if any, under this policy, shall be payable to M. J. Goldstein as mortgagee, (or trustee) as interest may appear, and this insurance, as to the interest of the mortgagee (or trustee) only therein shall not be invalidated by any act or neglect of the mortgagor, or owner of the within described property, nor by any foreclosure or other proceedings or notice of sale relating to the property, nor by any change in the title or ownership of the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy; provided, that in case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee (or trustee) shall, on demand, pay the same.’

The insurance company contends that this clause is predicated...