Harrington v. Agricultural Insurance Company of Watertown

• Citation: 229 N.W. 792,179 Minn. 510
• Decision Date: 14 March 1930
• Docket Number: 27,748
• Parties: R.L. HARRINGTON v. AGRICULTURAL INSURANCE COMPANY OF WATERTOWN, NEW YORK, AND OTHERS
• Court: Supreme Court of Minnesota (US)

229 N.W. 792

179 Minn. 510

R.L. HARRINGTON v. AGRICULTURAL INSURANCE COMPANY OF WATERTOWN, NEW YORK, AND OTHERS

No. 27,748

Supreme Court of Minnesota

March 14, 1930

Defendants appealed from an order of the district court for Dakota county, Schultz, J. sustaining demurrers to their separate answers. Reversed.

SYLLABUS

When award of appraisers under fire policy may be vacated.

1. An award of the appraisers of a loss under a fire insurance policy may be so grossly inadequate or excessive as to be in effect a fraud and subject to vacation although no actual fraud is claimed. Furthermore, although the appraisers may have determined the coverage of the property, the insurer is entitled to have a judicial determination of that question notwithstanding the award. That is but part of his right to have the question of liability judicially determined.

Award for sound value of "improvements and betterments" was erroneous.

2. A lessee procured an open fire policy on "improvements and betterments" made by him but which under the lease became the property of the lessor, the lessee's only interest being the right to use them during the relatively short period which the lease had to run. Held that an award on a total loss as for full "sound value" was erroneous, the lessee's only right of recovery being for the loss of his right to use the insured property for the remainder of the term of the lease.

Fire Insurance, 26 C.J. § 459 p. 359 n. 65; § 560 p. 425 n. 48; § 564 p. 426 n. 65.

See note in 42 L.R.A.(N.S.) 135; 14 R.C.L. 915; R.C.L. Perm Supp. p. 3704.

Nathan H. Chase, for appellants.

Harry A. Hageman, for respondent.

OPINION

STONE, J.

Action on a policy of fire insurance wherein defendants, the insurers, appeal from an order sustaining general demurrers to their separate answers.

Taking as true the admitted allegations of the complaint and the averments of the answers, the facts are these: January 17, 1920, plaintiff leased a store property in Minneapolis for a term beginning March 15, 1920, and ending August 31, 1929. The terms of the lease were such that anything the lessee might add to the real estate by way of "improvements and betterments" would become the property of the lessor, the lessee's interest therein being nothing more than the right of user for the purposes and duration of the lease. As permitted by the lease and in order to fit the premises for his own use, plaintiff made improvements at a cost of over $12,000.

September 7, 1927, when the lease had but two more years to run, the building was damaged by fire. Plaintiff's loss was covered by the policies, in the Minnesota standard form, upon which suit is brought. They insured plaintiff against loss or damage by fire to the "improvements and betterments" which he himself had made.

Plaintiff claimed that the loss was total and its amount the full, intrinsic or "sound value" of the improvements. Defendants failed to agree. An appraisal was had as provided for by the policies. The resulting award allowed plaintiff's claim in full -- fixing his loss at $11,304.52, the whole "sound value" of the property. The value of plaintiff's right of user of the insured improvements during the remaining two years of the lease does not appear save for an allegation of the answers that plaintiff's "insurable interest" did not exceed $3,500 at the time of the fire. The answers further allege, and so we must assume, that the award was made on the theory that the policies covered "the full and intrinsic value of said improvements and betterments * * * instead of covering solely the value of plaintiff's insurable interest therein."

1. There is no claim of fraud inducing the award or contributing to it. But where such an award is so grossly inadequate or excessive as to be in effect a fraud it may be vacated ( Kaufman Jewelry Co. v. Insurance Co. of Pa. 172 Minn. 314, 215 N.W. 65, 431) as where "the referees had no proper appreciation of the kind of property with which they were dealing, or of the damage done it." For such reasons alone an award may be so grossly inadequate or excessive as to be the equivalent of fraud. Baldinger v. Camden F. Ins. Co. 121 Minn. 160, 163, 141 N.W. 104. Furthermore, although the appraisers of a fire loss must determine what property was covered in order to arrive at the amount of damage, the right of the insurer to have a judicial determination of liability includes the right to a judicial determination of the coverage of the policy. Itasca Paper Co. v. Niagara F. Ins. Co. 175 Minn. 73, 220 N.W. 425. Under both propositions just stated the answers stated a defense to plaintiff's cause of action on the award. It was error to sustain the demurrers. For that conclusion our reasons follow.

2. The appraisers went upon the theory that plaintiff should have the damage to the "improvements and betterments" as such instead merely of the damage to his interest therein the loss of his right to use them as lessee for the remaining two years of his lease. Upon that theory alone could there be an award for full sound value. Counsel for plaintiff frankly meets that situation with the proposition that "in the absence of fraud or mistake, and where not otherwise limited by the policy, if the insured has an insurable interest at the time the policy is obtained and also at the time of the loss he is entitled to recover the whole amount of the loss not exceeding the amount of the insurance, regardless of the nature or extent of his peculiar interest." 26 C.J. 358. Kludt v. German M.F. Ins. Co. 152 Wis. 637, 140 N.W. 321, 45 L.R.A.(N.S.) 1131, Ann. Cas. 1914C, 609, supports the text. But not all the other cases cited (26 C.J. 358 -- note 58) are of the purport indicated. In Citizens F. Ins. Co. v. Lockridge & Ridgeway, 132 Ky. 1, 116 S.W. 303, 20 L.R.A.(N.S.) 226, it is frankly recognized that a tenant may be damaged the value of his unexpired term and nothing more. (In Hartford Ins. Co. v. Haas, 87 Ky. 531, 540, 9 S.W. 720, 2 L.R.A. 64, open insurance in favor of a widow was held to cover her interest in the "building destroyed.") Boston & Salem Ice Co. v. Royal Ins. Co. 12 Allen, 381, 90 Am. D. 151, is simply to the effect that a policy of insurance upon chattels will not be discharged by an executory contract for the sale thereof and by a receipt of a portion of the purchase money if the title at the time of the loss remains in the person insured, the seller. Obviously correct is that result, for the whole legal title and entire risk of loss was upon the insured. Equally inappropriate...