National Union Fire Ins. Co. v. Short

• Decision Date: 16 May 1929
• Docket Number: No. 5128.,5128.
• Citation: 32 F.2d 631,64 ALR 753
• Parties: NATIONAL UNION FIRE INS. CO. v. SHORT et al.
• Court: U.S. Court of Appeals — Sixth Circuit

64 ALR 753, 32 F.2d 631 (1929)

NATIONAL UNION FIRE INS. CO. v. SHORT et al.

No. 5128.

Circuit Court of Appeals, Sixth Circuit.

May 16, 1929.

Frank M. Drake, of Louisville, Ky. (George B. Martin, of Catlettsburg, Ky., on the brief), for plaintiff in error.

Stanley Reed, of Ashland, Ky., and Staige Davis, of Charleston, W. Va. (A. R. Johnson, of Ironton, Ohio, John T. Diederich, of Ashland, Ky., Davis & Painter, of Charleston, W. Va., and Browning & Reed, of Ashland, Ky., on the brief), for defendants in error.

Before MOORMAN, HICKS, and KNAPPEN, Circuit Judges.

KNAPPEN, Circuit Judge.

This writ is brought to review a judgment in favor of defendants in error on a policy of fire insurance issued by plaintiff in error upon a building situated in Kentucky. The salient facts are these:

On March 15, 1924, while defendant in error Nannie Short and her husband, I. W. Short, owned in fee the building in question, they mortgaged it to the defendant in error Mortgage & Discount Company. Later, on November 8, 1924, the husband conveyed to his wife his one-half interest in the property, subject to the mortgage. Still later, Nannie Short took out in her own name the insurance policy in question upon the entire property — loss, if any, payable to the Mortgage & Discount Company, as mortgagee (or trustee), as such interests may appear. Still later, and before the fire, the trustee in bankruptcy of I. W. Short brought suit against Nannie Short to set aside the deed from husband to wife, as made in fraud of the former's creditors and without consideration. While this suit was pending the fire occurred. After the fire judgment was rendered in the trustee's suit setting aside the transfer from husband to wife as fraudulent as to creditors of I. W. Short. The insurance company defended this suit to collect the fire loss, by reason of alleged breaches of familiar provisions of standard fire policies, viz.:

(1) That Mrs. Short was not "the unconditional and sole owner" of the property when the policy issued, and her interest was not truly stated — all because of the conveyance by husband to wife of the former's one-half interest in fraud of creditors, in fact not established until after the fire.

(2) That there was a fraudulent concealment of a material fact, in taking the policy without disclosing the nature of the conveyance to her by her husband of his one-half interest, which, as above stated, was not established until after the fire.

(3) That there was a "change of interest" after the policy was issued (but before the fire), when the trustee in bankruptcy attacked her title to her husband's former one-half interest, upon the ground which was held (after the fire) to be sufficient.

The trial court sustained plaintiff's demurrer to paragraphs 3 and 4 of the insurance company's answer (the other paragraphs being withdrawn), and rendered judgment against defendant for the face of the policy with interest — the amount of the mortgage debt to be paid the Mortgage & Discount Company, the balance to be paid to the bankruptcy trustee and Nannie Short jointly.

1. Whatever might be the effect of the husband's conveyance to Nannie Short upon the rights of the latter and those of the trustee of the former under the insurance policy, we think it clear that the rights of the Mortgage & Discount Company would not thereby be impaired. The mortgage clause in the policy provides, so far as here pertinent, "Loss, if any payable to the West Virginia Mortgage & Discount Corporation * * * as mortgagee (or trustee), as such interest may appear. This policy, as to the interest therein of the said payee, as mortgagee (or trustee) only, shall not be invalidated¹ by any act or neglect of the mortgagor or owner of the within described premises, * * * nor by any change in the interest, title or possession of the property, nor by any increase of hazard," with a proviso that the mortgagee or trustee shall notify the insurer of any change of ownership or occupancy or increase of hazard which shall come to the knowledge of the mortgagee (or trustee), and unless permitted by the policy the same shall be noted thereon, and the mortgagee (or trustee) shall, on demand, pay the premium for any increased hazard.

There is no claim that the mortgagee had any such knowledge. Under the great weight of authority, the effect of this mortgage clause when attached to a policy of insurance running to the mortgagor was to make "a new and separate contract between the mortgagee and the insurance company, and to effect a separate insurance of the interest of the mortgagee, dependent for its validity solely upon the course of action of the insurance company and the mortgagee, and unaffected by any act or neglect of the mortgagor, of which the mortgagee is ignorant, whether such act or neglect was done or committed prior or subsequent to the issue of the mortgage clause." Syndicate Insurance Co. v. Bohn (C. C. A. 8) 65 F. 165, 27 L. R. A. 614; Allen v. St. Paul, etc., Insurance Co., 167 Minn. 146, 149, 208 N. W. 816; Fayetteville Ass'n v. Mutual, etc., Co. (W. Va.), 141 S. E. 634 (1928); Westchester, etc., Ins. Co. v. Norfolk B. & L. Ass'n (C. C. A. 8), 14 F.(2d) 524, 526. The same result, however, follows from the views expressed under subdivisions 2, 3, and 4 of this opinion.

2. Turning, then, to the rights of Mrs. Short and of her husband's trustee: We think the fact that the conveyance to Mrs. Short from her husband of his undivided one-half of the property, without pecuniary consideration therefor, and with intent on his part thereby to prevent its application to his personal debts, did...