Ormsby v. Phenix Ins. Co. of Brooklyn

• Decision Date: 03 March 1894
• Citation: 58 N.W. 301,5 S.D. 72
• Parties: ORMSBY et al. v. PHENIX INS. CO. OF BROOKLYN.
• Court: South Dakota Supreme Court

58 N.W. 301

5 S.D. 72

ORMSBY et al. v. PHENIX INS. CO. OF BROOKLYN.

Supreme Court of South Dakota

March 3, 1894

Syllabus by the Court.

1. The mortgage clause agreement annexed to the policy of insurance in this action constitutes a new contract between the insurer and the mortgagee which, so long as the conditions therein contained are complied with, suspends the effect of the stipulations of the policy as to the acts of the owner or mortgagor which will forfeit the policy.

2. The stipulations in the mortgage clause agreement annexed to the policy of insurance that "the insurance as to the interest of the mortgagee or trustee only therein shall not be invalidated by any act or neglect of the mortgagor or owner of the property insured, or by the occupation of the premises for purposes more hazardous than are permitted by the terms of the policy; *** provided, also, that the mortgagee or trustee shall notify the company of any change of ownership or increase of hazard which shall come to his or her knowledge, and shall have permission for such change of ownership or increase of hazard duly indorsed on the policy,"--constitute conditions and not covenants.

3. Failure on the part of the mortgagee to comply with the conditions in the mortgage clause agreement suspends the operation of the same, and leaves in force and effect the stipulations in the policy as to the acts on the part of the owner or mortgagor that will operate to forfeit the policy.

4. The evident design and the legal effect of such condition is to require the mortgagee to notify the insurer of any change of ownership or increase of hazard which shall come to his knowledge, as a condition of continuing such stipulations in force.

5. The burden of proving that the conditions contained in the mortgage clause agreement have not been complied with by the mortgagee or trustee rests upon the insurer.

6. The record of foreclosure proceedings, the regularity of which is not questioned, instituted to foreclose a subsequent mortgage upon the insured property, and the sheriff's deed thereunder, made prior to the loss, in which the owner or mortgagor to whom the policy was issued is made a party and duly served with summons, is admissible as evidence to prove a change of ownership of the property insured.

7. Such record of the proceedings to foreclose the subsequent mortgage, and the sheriff's deed thereunder,--such foreclosure action being in the name of one E. S. Ormsby, one of the plaintiffs herein, as plaintiff in that action, and instituted for the American Investment Company, of which said Ormsby was president,--was admissible in evidence as tending to prove that Ormsby and the American Investment Company had knowledge of a change of ownership of the property insured prior to the loss, although evidence had been previously given on the trial that the owner of the property had conveyed the same to a third person prior to the commencement of such foreclosure proceedings.

8. Evidence was admissible to prove that the insurer had no notice of such foreclosure proceedings, or any change of ownership of the property, prior to the loss.

9. Evidence was introduced on the trial tending to prove that E S. Ormsby, one of the plaintiffs in this action, was the plaintiff in the foreclosure proceedings, and received the sheriff's deed as trustee of the American Investment Company, of which he was the president, and for which the foreclosure proceedings were instituted and carried on, and that he and the investment company were the agents of Mary F Crosby, one of the plaintiffs, and the real party in interest in this action, "to the extent of making collections and remittances, and attending to all taxes, insurances, and foreclosures, and any other matters necessary to the protection" of her interests in North and South Dakota and Iowa. Held, that such evidence should have been submitted to the jury, as tending to prove facts from which the knowledge of said Ormsby and the investment company of a change of ownership of the property was imputable to the plaintiff, Mary F. Crosby.

Appeal from circuit court, Aurora county.

Action on a policy of insurance by E. S. Ormsby, trustee, and Mary F. Crosby against the Phenix Insurance Company of Brooklyn New York. There was judgment for plaintiffs, and defendant appeals. Reversed.

H. C Preston, for appellant. W. M. Smith and Soper, Allen & Morling, for respondents.

CORSON P. J.

On July 3, 1885, Mary J. Simons procured through the American Investment Company a loan, for which she executed a bond for $1,000 to F. A. Huggins, and at the same time, to secure the payment of the said bond, executed a trust deed to E. S. Ormsby, one of the plaintiffs herein, upon a quarter section of land in Aurora county, this state. To further secure the $1,000 loan, Mrs. Simons procured from the defendant an insurance policy, issued to herself, upon the building on the premises mortgaged, the loss, if any, to be paid to the trustee or holder of the bond; and there was annexed to and made a part of the policy a mortgage clause, the material parts of which are as follows: "Loss, if any, payable to E. S. Ormsby, trustee, for F. A. Huggins, or the holder of the bond for $1,000, dated July 3, 1885, given to said F. A. Huggins and secured by mortgage to said E. S. Ormsby, trustee, as the mortgage interest may appear at date of loss. It being hereby understood and agreed that this insurance, as to the interest of the mortgagee or trustee only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the property insured, or by the occupation of the premises for purposes more hazardous than are permitted by the terms of this policy: provided, that, in case the mortgagor or owner neglects or refuses to pay any premium due under this policy, then, on demand, the mortgagee or trustee shall pay the same: provided, also, that the mortgagee or trustee shall notify this company of any change of ownership or increase of hazard which shall come to his or her knowledge, and shall have permission for such change of ownership or increase of hazard duly indorsed on this policy: and provided, further, that every increase of hazard not permitted by the policy to the mortgagor or owner shall be paid for by the mortgagee or trustee, on reasonable demand, and after demand made by this company upon, and refusal by, the mortgagor or owner to pay according to the established schedule of rates. It is, however, understood that this company reserves the right to cancel the policy as stipulated in the printed conditions in said policy, and also to cancel this agreement on giving ten days' notice of their intention to the mortgagee or trustee named herein. From after the expiration of the said ten days this agreement shall be null and void. *** It is also agreed that whenever this company shall pay the mortgagee or trustee any sum for loss under this policy, and shall claim that as to the mortgagor or owner no liability therefor existed, it shall at once and to the extent of such payment be legally subrogated to all rights of the party to whom such payment shall be made under any and all security held by such party for the payment of said debt. ***" This policy bears date of August 24, 1885, and the mortgage clause was annexed at the same time. On January 17, 1886, the said bond was duly assigned to the plaintiff, Mary F. Crosby, who has ever since continued to be its owner and holder, and at the same time the original trust deed was delivered to her. The complaint is in the usual form.

The answer denies certain allegations of the complaint, and sets up as defenses to the action: (1) That the said Mary J Simons gave a second mortgage to Ormsby, Clute & Co. bearing date July 3, 1885, on said property, of which no notice was given to the defendant; (2) that said second mortgage was foreclosed, and the property purchased under the sale of said foreclosure by the American Investment Company, no notice of which was given to the defendant; (3) that the said Mary J. Simons conveyed said property to one John Fowler, in 1886, of which transfer no notice was given to the defendant; (4) that the possession of said property was changed, and at the time of the loss the premises were in the possession of a tenant of the American Investment Company, but of which change of possession no notice was given to the defendant, and that the plaintiffs had full notice and knowledge of said second mortgage, the foreclosure of same, and change of possession of the premises. And it is further alleged that, by the terms of the policy, the execution of the second mortgage, transfer of the property, and change of possession rendered the policy void; and, as a further defense, it is alleged that proofs of loss were not made within the time prescribed by the policy. The policy contains, among others, the following stipulations: "If there be a mortgage or other incumbrance thereon, it must be represented to the company, *** otherwise the policy shall be void." "If the property be sold or transferred, *** or any change takes place in title or possession, *** whether by legal process or judicial decree, or voluntary transfer or conveyance, *** then, in every such case, the policy shall be void." On the trial the defendant introduced evidence tending to prove that Mrs. Simons, on July 3, 1885, executed a second mortgage on the premises described in the trust deed, to Ormsby, Clute & Co., of which firm plaintiff Ormsby was a member, of which no notice was given to the defendant; and defendant offered evidence tending to prove that said mortgage was foreclosed, and the property sold, and bought in by the American Investment Company, the successor of Ormsby, Clute & Co., and that the premises...