Niagara Fire Ins. Co. v. Layne

• Decision Date: 11 February 1915
• Parties: NIAGARA FIRE INS. CO. v. LAYNE.
• Court: Kentucky Court of Appeals

172 S.W. 1090

162 Ky. 665

NIAGARA FIRE INS. CO. v. LAYNE.

Court of Appeals of Kentucky.

February 11, 1915

Appeal from Circuit Court, Pike County.

Action by Marion Layne against the Niagara Fire Insurance Company. Judgment for plaintiff, and defendant appeals. Reversed and remanded.

Hager &amp Stewart, of Ashland, and James Sowards, of Pikeville, for appellant.

J. J Moore, of Pikeville, for appellee.

HANNAH J.

On November 2, 1911, the Niagara Fire Insurance Company, by its standard form policy, insured M. B. Collinsworth for the period of one year against loss or damage by fire in the amount of $150 on a building and $850 on a stock of general merchandise therein stored, on Johns creek, in Pike county.

On February 6, 1912, Collinsworth sold the merchandise to appellee, Layne, for the sum of $2,050; Layne executing to Collinsworth a mortgage on the merchandise and on a certain tract of land in Pike county to secure the payment of the unpaid portion of the purchase price thereof, $1,833. On February 15, 1912, at the solicitation and request of Collinsworth, the agent of the insurance company at Ashland in Boyd county, indorsed upon the policy the company's consent to the transfer of the policy by Collinsworth to Layne.

The building and its contents were destroyed by fire on October 11, 1912; and, the fire insurance company having declined to pay the amount of the policy, Layne sued thereon in the Pike circuit court, and obtained a verdict and judgment in the sum of $150 for loss of the building, and $550 for loss of the merchandise. Layne had a policy in the same amount in another company, so that the verdict was for one-half of the loss as estimated by the jury; that is, the jury found the value of the building to be $300 and of the merchandise to be $1,100, and returned a verdict against the Niagara Fire Insurance Company for one-half of said amounts. The insurance company appeals.

1. At the outset it may be noted that where, as in this instance, a policy is by consent of the insurer assigned and transferred by the original holder thereof, a new and independent contract of insurance is created equivalent to the original issual of a policy by the insurer to the assignee. Home Insurance Co. v. Allen, 93 Ky. 270, 19 S.W. 743, 14 Ky. Law Rep. 161; Id., 13 Ky. Law Rep. (abstract) 95.

2. It is contended by appellant company that there can be no recovery for loss upon the merchandise, because it was incumbered by the mortgage above referred to at the time of the transfer of the policy to Layne. The policy contained a stipulation to the effect that, if the subject of the insurance be or become incumbered by a chattel mortgage, the policy should be void. It is insisted by appellant that the fact of the incumbrance was material; that it was not known to the company's agent at the time he consented to the transfer of the policy; and that it was not communicated to the agent at that time. It is conceded by appellant that its agent made no inquiries of Collinsworth at the time he procured consent to the transfer thereof in respect of incumbrances on the merchandise. So that, primarily, the question presented is the effect of the failure of an applicant for insurance to communicate to the insurer the fact of an incumbrance on the property sought to be insured, where no inquiry is made concerning the subject, and where the policy has a forfeiture clause similar to the one sued on.

3. Section 639, Kentucky Statutes, provides that all statements or descriptions in any application for a policy of insurance shall be deemed and held representations, and not warranties, and that no misrepresentation, unless material or fraudulent, shall prevent a recovery on the policy. And in Hartford Fire Ins. Co. v. McClain, 85 S.W. 699, 27 Ky. Law Rep. 461, it was said that this section of the statutes applies to the policy as well as to the application therefor, and that stipulations contained in the policy itself, as to title or interest, though not signed by the insured, amount to representations by the applicant of such facts. Language to the same effect is found in Wilson v. Germania Fire Ins. Co., 140 Ky. 642, 131 S.W. 785. But in both of these cases the question of ownership of the insured property, and not an incumbrance thereon, was involved, and the insured was properly permitted to recover the value of their interest in the property. Hartford Ins. Co. v. Haas, 87 Ky. 531, 9 S.W. 720, 10 Ky. Law Rep. 573, 2 L.R.A. 64; Spalding v. Miller, 103 Ky. 414, 45 S.W. 462, 20 Ky. Law Rep. 131; American Central Ins. Co. v. Leake, 104 S.W. 373, 31 Ky. Law Rep. 1018; Wilson v. Germania Fire Insurance Co., 140 Ky. 646, 131 S.W. 785.

It may be conceded that if A. obtains a policy of fire insurance on certain property, although he may not be asked a direct question concerning its ownership, or may have made no direct representation in respect thereof, the fact of obtaining the policy itself amounts to a representation that he is the owner of the property. But the obtaining of such policy would not amount to a representation that the property was unincumbered. So that, where no inquiry is made and answered concerning incumbrances on the property sought to be insured, and no voluntary statement is made concerning the existence or nonexistence of incumbrances, there is no representation or statement in the application for the insurance which will render applicable section 639, Kentucky Statutes.

4. Where one applying for insurance does make answer to inquiries, or makes statements voluntarily, this court has consistently held that section 639 controls, and that, if the fact be material and the answer untrue, the policy is avoided, whether the applicant knew the statement to be untrue or not, and regardless of any fraud or intent to mislead or deceive the insurer. American Aid Soc. v. Bronger, 91 Ky. 406, 15 S.W. 1118, 12 Ky. Law Rep. 971, 11 Ky. Law Rep. 902; Mutual Life Ins. Co. v. Thomson, 94 Ky. 255, 22 S.W. 87, 14 Ky. Law Rep. 800; Union Central Life Ins. Co. v. Lee, 47 S.W. 614, 20 Ky. Law Rep. 839; Provident v. Dees, 120 Ky. 285, 86 S.W. 522, 27 Ky. Law Rep. 670; Illinois Life Ins. Co. v. De Lang, 124 Ky. 569, 99 S.W. 616; Metropolitan v. Schmidt, 93 S.W. 1055, 29 Ky. Law Rep. 255; Western & Southern v. Quinn, 130 Ky. 397, 113 S.W. 456; Bristou v. Metropolitan, 115 S.W. 785; Provident v. Whayne, 131 Ky. 84, 93 S.W. 1049, 29 Ky. Law Rep. 160; National Protective Legion v. Allphin, 141 Ky. 777, 133 S.W. 788; K. of P. v. Bradley, 141 Ky. 334, 132 S.W. 547; Blenke v. Citizens' Life Ins. Co., 145 Ky. 332, 140 S.W. 561. Cases involving estopping knowledge upon the part of the insurance agent are, of course, necessarily excluded here.

5. But, where no inquiry is made and answered concerning incumbrances, and no voluntary statement in regard thereto is made by the applicant for insurance, an avoidance of the policy will not be declared unless the insured has fraudulently failed to disclose the fact of an incumbrance material to the risk assumed by the company.

In Southern California Insurance Co. v. Lucas, 15 Ky. Law Rep. 574, it was said:

"An applicant for fire insurance, whether inquiry was made of him or not, was bound to communicate all facts known to him and by him believed to be material, and his failure to do so must be regarded as a concealment; and it is to be presumed that he knew and believed what men of ordinary intelligence know and believe. Where a house and the 16 acres of land upon which it was situated was worth only $1,700, and the house was insured for $1,000, the failure of the insured to disclose the existence of mortgage liens amounting to more than $700 was sufficient to invalidate the policy, although no inquiry was made as to incumbrances, as the insured must have known that after satisfying the mortgage liens his interest in the insured property would not be as much as the amount for which he was insuring it."

In Fireman's Fund Insurance Co. v. Meschendorf, 14 Ky. Law Rep. 757, insured obtained a policy of insurance in the sum of $1,500 on property worth $2,200, and upon which there was a lien of $400. No inquiry was made of him concerning incumbrances. The court in that case said:

"The rule is that, when no inquiries are made, the intention of the assured becomes material, and to avoid the policy it must be found not only that the matter was material, but also that it was intentionally and fraudulently concealed."

In Lancashire Insurance Co. v. Monroe, 101 Ky. 12, 39 S.W. 434, 19 Ky. Law Rep. 204, the property was incumbered by a mortgage, the existence of which was not disclosed by the insured, no inquiries having been made of insured by the agent of the insurance company concerning incumbrances. In that case the court said:

"The case, * * * therefore, is one where, without inquiry as to any mortgage, the company accepts the money of the insured, prepares its own policy, and issues it. It seems to us that the insured has the right to assume that the company has made inquiries of him, touching every material fact affecting the risk, and, if he does not scrutinize the multitude of conditions and stipulations with which he finds his policy shingled over, he only risks the avoidance of his policy if it turns out that he has failed to disclose what is, in fact, material, and what he ought to have known to be material to the risk assumed by the company. We think this is the effect of the later decisions of this court, as is certainly the trend of the authorities genrally. In May on Insurance, § 207, it is said: 'Where no inquiries are made, the intention of the assured becomes material, and to avoid the policy it must be found not only that the matter was material, but also that it was intentionally and

...