Home Mut. Ins. Co. v. Oregon Ry. & Nav. Co.

• Decision Date: 30 April 1891
• Citation: 26 P. 857,20 Or. 569
• Parties: HOME MUT. INS. CO. v. OREGON RY. & NAV. CO.
• Court: Oregon Supreme Court

26 P. 857

20 Or. 569

HOME MUT. INS. CO. v. OREGON RY. & NAV. CO.

Supreme Court of Oregon

April 30, 1891

Appeal from circuit court, Multnomah county; E.D. SHATTUCK, Judge.

The complaint states in substance that on the 30th day of April 1888, the plaintiff had executed to one J.H. Koontz three insurance policies for the aggregate amount of $20,000 on his mill and its contents at Echo, Or.; that on that date the said mill and its contents were totally destroyed by fire caused by the negligence of the defendant; that on May 22 1888, and June 1, 1888, upon proof of loss, the plaintiff paid said Koontz the amount of said policies in full; and that the value of said property so destroyed was the sum of $39,361.72. Judgment is asked for the full sum of $19,888.14 and interest, and for costs and disbursements. The defendant after denying the material facts as alleged, set up as a defense, in substance, that on the 21st day of December 1888, the said Koontz commenced his action against defendant in the circuit court for Umatilla county for the recovery of the sum of $39,361.72 as damages for the destruction of said mill and its contents, and that subsequently a verdict was rendered therein by the jury in favor of said Koontz for the sum of $17,500, which was affirmed on appeal to the supreme court, and that the defendant thereafter in that action paid the said Koontz the amount so found as damages for the destruction of said property, and that by reason thereof the said Koontz was fully compensated for the total amount of the injury to him caused by the defendant, and that said Koontz holds said money in trust for the use and benefit of the plaintiff, etc. And the defendant set up as a further defense that, prior to the commencement of the action of said Koontz against the defendant herein, the plaintiff herein, the Home Mutual Fire Insurance Company, had full knowledge of the circumstances of the destruction of said property, and that an action was about to be commenced by the said Koontz against said railroad company to recover damages for such loss, and was notified by said Koontz and his attorneys of such fact, and was requested by them to prosecute, or join with him in prosecuting, the action against the said company; that the said insurance company neglected and refused to prosecute either severally or jointly with said Koontz, and disclaimed all interest therein, and permitted said action to be prosecuted alone by said Koontz against said railroad company. The defendants in the present action allege that at the time of the commencement of said action, and until after the trial thereof as aforesaid, neither of the defendants had any knowledge that the property alleged to have been destroyed was insured in the plaintiff company, or that said Koontz had received any sum whatever on account of said loss; that after the judgment was recovered, and while said action was pending upon appeal, the defendants for the first time became aware of the fact that the property was insured in said company, and immediately notified the insurance company of the recovery of the judgment in favor of Koontz, and requested it to take such steps as it might deem necessary to protect any interest or claim upon the proceeds of the judgment which it might have; that the insurance company, upon the receipt of such notice, disclaimed any right, title, or interest in the said judgment in favor of Koontz, or the proceeds thereof, and declined to take any steps, legally or otherwise; that by reason of the failure of the insurance company to unite with the said Koontz in the prosecution of said action, and failure to disclose their interest and to take any steps to prevent the collection of said judgment, whereby Koontz was permitted to receive the entire proceeds of said judgment, the insurance company was guilty of a fraud upon the rights of the defendant, and is estopped from prosecuting this action. To these last two defenses, the plaintiff demurred that they were insufficient to constitute a defense, which being overruled by the trial court, the appeal is taken from the judgment rendered therein.

John M. Gearin, for appellant.

W.W. Cotton and Zera Snow, for respondent.

LORD J., (after stating the facts as above.)

The question presented by the contention for the plaintiff is that, if a loss under a policy of fire insurance is caused by the wrongful act of a third person, the insurer, upon making payment to the insured pro tanto, is subrogated to the rights and remedies of the insured and may maintain against the wrong-doer an action in his own name, and need not prosecute it in the name of the insured. This action is brought by the plaintiff in its own right upon the assumption that the effect of the insurance was to create in the plaintiff a pecuniary interest in the property insured, and that when it was destroyed by the wrongful act of the defendants, whereby it became liable and was required to pay for the loss to the extent of the insurance to the insured, it became entitled to a legal remedy against the defendants in its own independent right to the extent which it was compelled to pay for such loss occasioned by the defendant's wrongful act. This involves an inquiry into the nature of the rights which the insurer acquires upon the payment of the insurance for a loss caused by the wrongful act of a third person.

The right of the insurance company that has paid a loss to recover of the wrongdoer after payment of such loss rests upon the doctrine of subrogation, in its application to insurance companies. "Every day," said Lord MANSFIELD, "the insurer is put in the place of the insured." Mason v. Sainsbury, 3 Doug. 63. Subrogation is purely an equitable result. It is the creation of equity, is not dependent on contract, and is enforced for the purpose of attaining the ends of justice. It grows out of the relation which the parties sustain to each other; the party subrogated acquires no other or greater rights than those of the party for whom he is substituted. As the contract of insurance is one of indemnity, when a loss occurs by the negligent or wrongful act of a third party, and the insurer pays the insured, he is entitled upon equitable principles to be subrogated to the rights of the insured against the wrong-doer. Hence the general rule that when property which has been insured is lost or destroyed by the negligent or willful act of another an action accrues in favor of the insured, and if the insurer pays the loss he is subrogated to the rights of the insured as against the wrongdoer, with all his rights as well as his remedies.

"Where the property insured," says Mr. Wood, "is destroyed by the negligence of a third person, so that the assured has a remedy against him therefor, the insurer by payment of the loss becomes subrogated to the rights of the assured to the extent of the sum paid under the policy. The assured becomes trustee for the insurer, and by necessary implication the payment of the loss operates as an equitable assignment to the insurer to the extent of the sum paid under the policy." Wood, Ins. § 499. The owner and insurer, in respect to the ownership of the property and the risk incident thereto, are considered but one person, having together the beneficial right to an indemnity against the wrong-doer whose negligent act occasioned the loss or destruction of the property. The liability of such wrong-doer to the owner is first and principal, and that of the insurer secondary; not in order of time, but of ultimate liability. Hart v. Railroad Corp., 13 Metc. (Mass.) 99; Hall v. Railroad Cos., 13 Wall. 370 . The insurer standing in no relation of contract or privity with those who are responsible for the loss, his rights arise out of his contract of indemnity, and are derived from the assured alone, and can only be enforced in the right of the latter. "In any form of remedy," says Mr. Justice GRAY "the insurer can take nothing by subrogation but the rights of the...