Howard v. International Indemnity Company

• Decision Date: 10 May 1924
• Docket Number: 25,262
• Citation: 116 Kan. 109,225 P. 1056
• Parties: E. H. HILL and R. F. HOWARD, Partners, etc., as HILL-HOWARD MOTOR COMPANY, Appellees, v. INTERNATIONAL INDEMNITY COMPANY, Appellant
• Court: Kansas Supreme Court

225 P. 1056

116 Kan. 109

E. H. HILL and R. F. HOWARD, Partners, etc., as HILL-HOWARD MOTOR COMPANY, Appellees, v. INTERNATIONAL INDEMNITY COMPANY, Appellant

No. 25,262

Supreme Court of Kansas

May 10, 1924

Decided January, 1924.

Appeal from Cowley district court; OLIVER P. FULLER, judge.

Judgment reversed.

SYLLABUS

SYLLABUS BY THE COURT.

FIRE INSURANCE--Mortgage Clause in Policy--Additional Insurance Forbidden--Violation of Conditions of Policy by Insured Prevents Recovery by Mortgagee. Under a fire insurance policy making the loss payable to a named mortgagee as his interest may appear, and in the absence of any provision in the policy or mortgage clause creating a different relation, the mortgagee is not a party to the contract, but he is merely an appointee to receive the proceeds of the policy to the extent of his interest in the event of a loss, and his rights to receive such proceeds depend upon the rights of the insured and a violation of the conditions of the policy by the insured which prevents his recovery thereon will also prevent recovery by the mortgagee.

Thomas F. Doran, and Clayton E. Kline, both of Topeka, for the appellant.

Albert Faulconer, Kirke W. Dale, and C. L. Swarts, all of Arkansas City, for the appellees.

OPINION

HARVEY, J.:

This is an action on a fire insurance policy by the mortgagee, to whom the loss was payable. From a judgment for plaintiff the defendant has appealed.

E. A. Redd purchased from the Hill-Howard Motor Company a Chalmers touring car and in part payment gave to the sellers his note, in effect a chattel mortgage on the car which stipulated that the purchaser should insure the automobile against fire in favor of the seller for an amount sufficient to cover the principal of the note. In compliance with that stipulation Redd took out a policy of insurance against loss by fire on the automobile in the International Indemnity Company, which policy contained this provision: "The automobile described is fully paid for by the assured and is not mortgaged or otherwise encumbered, except as follows: $ 450.00 due Nov. 9, 1919. Loss, if any, payable to Hill-Howard Motor Co. as their interests may appear." The policy also contained this provision: "It is a condition of this policy that it shall be null and void: (b) If at the time a loss occurs there be any other insurance covering against risks assumed by this policy which would attach if this insurance had not been effected." Thereafter Redd took out an insurance policy in the Western Automobile Insurance Company against loss by fire upon the same automobile. While both policies were ostensibly in force the car was destroyed by fire. This action was not brought by Redd but was brought by the mortgagee named in the first policy. The answer set up the conditions of the policy above set out and alleged that the conditions of the policy had been broken by the taking out of the second insurance policy and that therefore the first policy had become void, for which reason the defendant denied liability. No reply was filed. The only evidence offered by the plaintiff on the trial was as to the value of the car at the time of the fire and the amount still due the mortgagee, and on behalf of defendant evidence was offered of the taking out by Redd of the second insurance policy on the car. There was no claim made on behalf of the plaintiff that the defendant had in any manner waived the conditions of the policy sued on, nor that it had so conducted itself as to be estopped from asserting the defense plead.

Appellant contends that the conditions of the policy which avoided it by taking out other insurance were binding upon the mortgagee as well as upon the assured. It is a well-settled principle of insurance law, which has been long established and apparently universally followed, that where the policy simply designates the mortgagee as the person to whom the loss, if any, is payable to the extent of his interest, the balance; if any, to be payable to the assured, that the mortgagee is bound by the conditions of the policy to the same extent the assured is bound, and if the conditions be broken in such a way that the assured cannot recover, the mortgagee cannot recover.

In Franklin Savings Institution v. Central Mutual Fire Insurance Co., 119 Mass. 240, it was held:

"Where a building is insured against fire by a policy which provides that 'if the assured shall vacate the property in whole or in part, this policy shall be void; this company will not insure unoccupied property,' and an indorsement is made upon the policy by which it is to be payable in case of loss or damages to mortgagees of the insured property 'as their mortgage claim may appear,' and the property is afterwards destroyed by fire, when unoccupied, the policy is void both as to the original assured and the mortgagees."

In the opinion it was said:

"It has been repeatedly held by this court that such an indorsement does not operate as an assignment of the policy, nor as a contract to insure the interest of the mortgagees, but they can claim only what the party originally insured is entitled to recover under his contract."

In Holbrook v. Baloise Fire Ins. Co., 117 Cal. 561, 49 P. 555, the policy contained a clause naming the mortgagee and stipulating that loss, if any, is payable to said mortgagee. The policy contained a provision that if other insurance should be taken on the property without the consent of the insurance company, the policy would be void. Other insurance was taken, and it was held that the policy was void both as to the insured and as to the mortgagee.

In Jaskulski v. Citizens' Mut. Fire-Ins. Co., 131 Mich. 603, 92 N.W. 98, where a fire insurance policy was issued to the owner of the property and on it was indorsed, "Loss, if any, payable to E., mortgagee, as his interest may appear," the mortgagee had no contract with the company, avoiding the effect of a condition in the policy rendering it void on a transfer of the property without written notice to the insurer.

In Am. Central Ins. Co. v. Birds B. & Loan Ass'n, 81 Ill.App. 258, the insurance policy contained the clause, "Loss, if any, payable to the Birds Building & Loan Association, as its interest may appear." The policy contained a provision that it should be void and of no effect if, without notice to the insurance company and the permission thereof, the assured shall now have or hereafter make or procure any other insurance, whether valid or not, on the property insured. It was said in the opinion:

"The fact that the loss was made payable to the appellee as its interest might appear, did not prevent a breach of condition of the policy from making it void as to appellee." (p. 261.)

In Franklin Ins. Co. v. Wolff, 23 Ind.App. 549, 54 N.E. 772, it was held:

"A mortgagee to whom a loss is payable as his interest may appear is not an assignee of the policy in the sense that a new contract of indemnity is created with the insurer. Such mortgagee is therefore bound by a clause in the policy prohibiting other insurance of the property by the insured."

In the opinion it was said:

"The effect of the mortgage clause is that the company agrees, if money becomes due the mortgagor under the contract, to pay it to the mortgagee instead of paying it to the mortgagor himself. . . . The mortgagee can recover only in case the mortgagor could have done so." (p. 554.)

In Building and Loan Association v. Insurance Co., 50 La. Ann. 1243, 24 So. 238, the policy contained the clause:

"Any loss that may be ascertained and proven to be due the assured under the contract, shall be payable to . . . (mortgagee) as its interest may appear at the time of the fire and remainder, if any, to the assured." (p. 1244.)

After loss the mortgagee sued on the policy. It was held that the mortgage clause "secures to the mortgagee, while his mortgage is extant, the right of recovering any amount which may become due by the insurance company in which the insurance was effected upon that condition. . . . The fact that the loss, if any, was made payable to the mortgagee, did not have the effect of cancelling the conditions precedent to recovery." (p. 1246.) Other insurance was taken out by the assured in violation of the terms of the policy. It was held that the mortgagee could not recover.

In Antes v. State Ins. Co., 61 Neb. 55, 84 N.W. 412 under a mortgage clause attached to a policy of insurance as follows, "Loss, if any, payable to as her interest may appear, she being the mortgagee," held, that the mortgagee stood in no more favorable light than an assignee of the policy to the extent of her interest in the insured...