Nathan v. St. Paul Mut. Ins. Co.

Decision Date21 January 1955
Docket NumberNo. 36252,36252
Citation243 Minn. 430,68 N.W.2d 385
PartiesEvelyn NATHAN, Appellant, v. SAINT PAUL MUTUAL INSURANCE COMPANY, Respondent.
CourtMinnesota Supreme Court

Syllabus by the Court.

1. The basic principle of a 'valued policy' statute is that parties to a fire insurance contract agree in advance on a valuation of the property to be insured, and, in the absence of fraud, this valuation is binding and not subject to judicial inquiry. Under the 'valued policy' statute, M.S.A. § 65.05, if there is any change in the condition or surroundings of the property after the policy is issued which increases the risk without the consent of the insurer or if there is intentional fraud on the part of the insured, these matters may defeat a recovery on the policy. On the other hand, if the insurer fails to cause the structure to be previously examined before the policy or a renewal thereof is issued, as provided by statute, the whole amount mentioned in the policy or a renewal thereof upon which the insured paid a premium shall be paid in case of total loss, in the absence of intentional fraud on the part of the insured and in the absence of any change increasing the risk without the consent of the insurer. The nature, use, and condition of a structure which reasonably are discoverable by an inspection at the time the fire insurance policy is issued or renewed cannot be shown by the insurer as proof that, relative to those matters, the insured committed intentional fraud or misrepresentations increasing the risk of loss.

2. Failure to inspect the property before the insurance is issued does not prevent defendant from introducing evidence relative to any change after the policy was issued if the change results in an increase in the risk which existed at the time the loss occurred. What constitutes an increased risk is a question of fact for the jury unless the increase is obvious.

3. It is not necessary that the insured have an absolute right of property in order to have an insurable interest. All that is necessary is that he will suffer a loss if the property is destroyed regardless of whether he has any title to, lien upon, or possession of the property itself.

4. Held that the existence of a mechanic's lien for $200, which the insured claims she did not know about until the time of the trial, did not so increase the risk by reducing her pecuniary interest and thereby increasing the moral hazard as to void the policy under the record here.

Lowell W. Benshoof and P. F. Schroeder, Detroit Lakes, for appellant.

Dorsey, Colman, Barker, Scott & Barber and Henry Halladay and Curtis L. Roy, Minneapolis, for respondent.

FRANK T. GALLAGHER, Justice.

Appeal from an order of the district court denying plaintiff's motion for judgment notwithstanding the verdict or for a new trial.

Plaintiff brought this action on an insurance policy claiming that on and before March 14, 1949, she was the owner of a frame building in Fosston, Minnesota. She claims that she bought the building in 1946 and later moved it about three miles into Fosston, where an eight-room addition was erected and other improvements were made so that there were 16 rooms capable of housing four families. On March 14, 1949, she applied to defendant insurance company, through its agent at Bemidji, for a fire insurance policy of $12,000 on the building. Plaintiff stated that, in applying for the insurance, she told defendant's agent that the old part and the new addition of the building were in good shape; that she was the sole owner of the property; and that it did not have any mortgages or liens against it. The policy was issued for $12,000 and mailed to plaintiff, for which she paid a premium of $173.40. The policy ran for a period of three years, expiring March 14, 1952. On January 27, 1952, the building was completely destroyed by fire. This litigation involves the claim of plaintiff under the policy. The case was tried before a jury, which returned a verdict for defendant.

At the trial, evidence was introduced by defendant, over plaintiff's objection, which tended to show that, at the time plaintiff applied for fire insurance, the building in question was in a poor state of repair, especially the eight-room addition; that the structure was not properly set on its foundation; and that the building did not have central heating, plumbing, or electric lighting. Defendant contends in its brief that it 'was a veritable 'fire trap'.' Defendant also introduced evidence to the effect that, when plaintiff applied for the insurance, she did not have title to the premises and that they were encumbered with a mechanic's lien.

Plaintiff contends that under the Minnesota 'valued policy' law, M.S.A. § 65.05, this evidence was inadmissible. Section 65.05 provides in part 'Every company insuring any building or other structure against loss or damage by fire, lightning, or other hazard, by the issue of a policy or renewal of one theretofore issued, or otherwise, shall cause the structure to be previously examined, a full description thereof to be made, and its insurable value to be fixed, all by the insurer or his agent, and the amount thereof to be stated in the policy. In the absence of any change increasing the risk, without the consent of the insurer, of which the burden of proof shall be upon it, and in the absence of intentional fraud on the part of the insured, the whole amount mentioned in the policy or renewal upon which the insurer receives a premium, shall be paid in case of total loss, and in case of partial loss, the full amount thereof.'

It is undisputed that defendant or its agent did not 'cause the structure to be previously examined, a full description thereof to be made, and its insurable value to be fixed.' Rather, it appears that, when plaintiff applied for the insurance, she said that the building was in good shape and reasonably worth $12,000, and that that was the amount which was 'stated in the policy.'

Defendant recognizes that the inspection required by the statute precludes argument as to the value because the statute makes valuation conclusive. It argues, however, that at the trial it established three defenses to the satisfaction of the jury, namely, that the policy was void (1) because plaintiff lacked an insurable interest in the premises; (2) because it was induced by material misrepresentations made with intent to deceive and defraud as to matters which increased the risk of loss; and (3) because, without the assent of the insurer, a restaurant was operated on premises insured for dwelling purposes, which either altered the situation so as to increase the risk or constituted an attempt to defraud the company.

1. The basic principle of a 'valued policy' statute is that the parties to a fire insurance contract agree in advance on a valuation of the property to be insured, and, in the absence of fraud, this valuation is binding and not subject to judicial inquiry. Romain v. Twin City Fire Ins. Co., 193 Minn. 1, 258 N.W. 289; Unton v. Liverpool, L. & G. Ins. Co., 166 Minn. 273, 207 N.W. 625; see, 9 Dunnell, Dig. (3 Ed.) § 4803; 1 Couch, Cyclopedia of Insurance Law, § 74b.

Patterson, Essentials of Insurance Law, § 32, p. 118, attributes the passage of valued policy statutes to the indifference of insurance agents to the amount of insurance which their customers needed; to the fact that agents received larger commissions by selling the insured needless protection; and to the fact that the honest insured paid unnecessary premiums and the dishonest insured was tempted to commit arson. But even so, according to Patterson, the insurance companies found it more economical to pay excessive claims than to make an appraisal of every property insured. Thus, the purpose of valued policy statutes is twofold: (1) To prevent overinsurance by requiring prior valuation; and (2) to avoid litigation by prescribing definite standards of recovery in case of total loss. 49 Col.L.Rev. 818, 825; Ackerman, Insurance (3 Ed.) p. 96.

The problem before us was considered in Insurance Co. v. Leslie, 47 Ohio St. 409, 24 N.E. 1072, 9 L.R.A. 45, which involved the construction of an Ohio valued policy statute essentially the same as § 65.05. The court there reasoned, 47 Ohio St. 415, 24 N.E. 1074:

'If, after the policy is issued, there be any change in the condition or surroundings of the property which increases the risk, without the consent of the insurer, or if there be intentional fraud on the part of the insured, these are regarded by the statute as matters of substance, any may defeat a recovery on the policy; but, where there has been no intentional fraud on the part of the insured, a condition or situation of the property at the time of the insurance, which the examination the agent is required by the statute to make would have reasonably discovered, cannot, we think, be made available for that purpose; nor can the insurer, in case the property is entirely destroyed, be allowed to show that the value of the property is less than the amount mentioned in the policy.

'* * *(And) the statements in the application of the value of the property, and its condition, (in regard to which the company should have been informed by the examination the statute required it to make,) were immaterial, upon which the insurer had no right to rely, and could not be fraudulent.

'Nor do we think the operation of the statute can be defeated by the neglect of the agent to make the examination, or fix the insurable value of the property, as it requires. The duty of the company is to obey the law, and its disregard of that duty can give it no greater rights than the observance of it would.' (Italics supplied.)

The effect of that case was to give meaning to the Ohio statutory requirement that the insurer Inspect the property as well as fix the insurable value thereof.

In United States Fire Ins. Co. v. Sullivan, 8 Cir., 25 F.2d 40, 42, certiorari denied, 278 U.S. 608, 49...

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