Pacific Nat. Fire Ins. Co. v. Watts

• Decision Date: 22 August 1957
• Docket Number: 5 Div. 673
• Parties: PACIFIC NATIONAL FIRE INSURANCE COMPANY v. Rufus WATTS et al.
• Court: Alabama Supreme Court

Page 797

97 So.2d 797

266 Ala. 606

PACIFIC NATIONAL FIRE INSURANCE COMPANY v. Rufus WATTS et al.

5 Div. 673.

Supreme Court of Alabama.

Aug. 22, 1957.

Rehearing Denied Nov. 14, 1957.

Lewis H. Hammer, Jr., Roanoke, for appellant.

H. M. Brittain, Wedowee, and D. R. Boyd, Roanoke, for appellees Watts and Parker.

MERRILL, Justice.

Appeal from a decree sustaining respondents' demurrers to the bill as amended and dismissing the bill. Complainant-appellant is Pacific National Fire Insurance Company and respondents are Rufus Watts, J. J. Smartt and E. B. Parker.

It is agreed by the parties that the respondents' demurrers to the original bill were sustained on the ground that the bill was without equity because no right of subrogation existed as to complainant. The bill was amended by adding paragraphs 11, 12, 13 and 14, and adding two alternatives to the prayer for relief.

We think the question to be decided remains basically the same as to the bill as amended--does the complainant, under the allegations and exhibits of the bill, show a right to be subrogated to the extent of the $1,000 it paid under its policy of insurance on the dwelling on the property which was destroyed by fire?

The original bill alleged that Rufus Watts executed a mortgage to T. C. Ussery on 88 acres of land in Chambers County to secure payment of $1,800; that Watts procured insurance on the dwelling on the property in the amount of $1,000 the policy being issued by complainant; that the loss payable clause in the policy was to Ussery as his interest might appear; that Ussery's widow, with full authority, assigned the note and mortgage to J. Horace Brown and quitclaimed the property to him; that Brown was substituted for Ussery in the loss payable clause in the policy and that the premiums on the policy were paid until the house was destroyed by fire on October 29, 1954; that in January, 1954, Watts sold 44 acres of the tract, including the house, to Carrie and Earnest Fuller; that Watts thereby diversted himself of all right, title, interest and equity in and to the dwelling which was insured by complainant (a conclusion of the pleader which is incorrect as a statement of law and challenged by demurrer); that the Fullers had no interest in the policy and no liability under the policy existed as to them; that after the fire, complainant paid to Brown $1,000, the amount of the policy, and was thereupon subrogated to all the rights of Brown under the mortgage from Watts to Ussery, which had been assigned to Brown, to the extent of $1,000; that on February 9, 1955, Brown sold, conveyed and assigned to complainant all his right, title and interest in and to said note and mortgage to the extent of $1,000, reserving to himself the right to collect the balance due from Watts under the note and mortgage; and that Watts had defaulted in the payment of the note and mortgage. It was also alleged that respondent Smartt was in possession of the 44 acres sold by Watts to the Fullers, and that respondent Parker was in possession of the remaining 44 acres. The prayer of the bill sought a foreclosure of the mortgage and a declaration that the claims of respondents Smartt and Parker 'be declared subordinate to and null and void as to' the rights of the complainant. The exhibits to the bill were 'A', the mortgage from Watts to Ussery, 'B', the policy of insurance, 'C', the transfer from Mrs. Ussery to Brown, and 'D', the partial assignment of Brown to complainant.

Respondents Watts and Parker filed pleas in abatement on the ground that the lands were located in Chambers County but the suit was filed in Randolph County. These pleas were overruled on the basis that the suit was primarily one to foreclose a mortgage, and that the mortgagor Watts was a material defendant, and since he resided in Randolph County, the suit was properly brought in that County. Tit. 7, § 294, Code 1940.

As previously stated, the demurrers to the original bill were sustained and the complaint was amended. In the amending paragraphs it was alleged that subsequent to his assignment to complainant, Brown transferred the balance of the debt owed by Watts to him to Parker, and a copy of that instrument was made Exhibit 'E'; that thereafter, the mortgagor Watts executed a warranty deed to Parker as to the entire 88 acres of land, reciting therein that the same was in lieu of the foreclosure of the mortgage and in payment of the balance due on the mortgage, and a copy of that deed was made Exhibit 'F'; that later, in August, 1955, Parker conveyed the same 44 acres which Watts had sold to the Fullers to respondent Smartt.

Complainant amended its prayer in the alternative asking first, that an equitable trust in favor of complainant be impressed upon the 44 acres remaining in Parker's hands after his sale of the other 44 to Smartt and second, that complainant be permitted to redeem the entire 88 acres and that thereafter, the mortgage be foreclosed and the entire tract be sold to satisfy the indebtedness due complainant.

The three assignments of error complain of the action of the lower court in sustaining the demurrers to the bill as amended and dismissing the bill.

The rules as to subrogation in circumstances like those presented here are set out in a case cited and relied upon by both parties, Tarrant Land Co. v. Palmetto Fire Ins. Co., 220 Ala. 428, 125 So. 807, 809, where this court said:

'The right of subrogation has been the subject of many decisions and textwriters, and we feel that the principles of law which control the case are in the main settled as follows: When the policy, both by its face and by the intention of the parties, insures the mortgagor for his own benefit and at his own expense, no contract otherwise appearing, payment of the insurance money to the mortgagee goes to the benefit of the mortgagor in satisfaction pro tanto of the mortage debt, and the insurer is not entitled to subrogation. 26 C.J. 461; Hackett v. Cash, 196 Ala. 403, 72 So. 52; annotations in 52 A.L.R. 278; 7 Cooley's Briefs on Ins. (2d Ed.) 6720.

'Where the interest of the mortgagee is separately insured for his own benefit and at his own expense, and a loss occurs before payment of the mortgage, the insurer in paying the mortgagee is entitled to an assignment as a subrogee, and may enforce the mortgage against the mortgagor. 7 Cooley's Briefs on Ins. (2d Ed.) p. 6716; 26 C.J. 461.

'But in the former instance though the mortgagor procures the insurance for his benefit and pays the expense, the insurer upon payment of the loss to the mortgagee is entitled to subrogation, if the mortgage clause provides that the insurance shall be valid and binding for the benefit of the mortgagee only, if by reason of a breach of some term of the policy it has been forfeited as to the mortgagor, and also contains a stipulation looking to an assignment to the insurer of the whole or a part of the securities held by the mortgagee. 7 Cooley's Briefs on Ins. (2d Ed.) 6717, 6718; Hackett v. Cash, supra; annotations in 52 A.L.R. 278-280.'

The bill alleges that Watts procured the issuance of the policy of insurance and the policy, Exhibit 'B', shows on its face that 'Rufus Watts and legal representatives' were insured and that the name of the insured was Rufus Watts. Further allegations and exhibits show that the $1,000 insurance paid by complainant went to the benefit of Watts in satisfaction pro tanto of the mortgage debt. Thus, under the rule of the Tarrant Land Co. case in the first quoted paragraph supra, complainant is not...