Prudential Ins. Co. v. German Mut. Fire Ins. Ass'n

• Decision Date: 01 May 1933
• Citation: 60 S.W.2d 1008,228 Mo.App. 139
• Parties: PRUDENTIAL INSURANCE CO., RESPONDENT, v. GERMAN MUTUAL LIFE INSURANCE ASSOCIATION, APPELLANT
• Court: Kansas Court of Appeals

60 S.W.2d 1008

228 Mo.App. 139

PRUDENTIAL INSURANCE CO., RESPONDENT, v. GERMAN MUTUAL LIFE INSURANCE ASSOCIATION, APPELLANT

Court of Appeals of Missouri, Kansas City

May 1, 1933

Appeal from Circuit Court of Cole County.--Hon. W. S. Stilwell Judge.

REVERSED AND REMANDED.

Glenn C. Weatherby and Crossan & Hall for respondent.

Irwin & Bushman and Harry L. Buchanan for appellant.

OPINION

BLAND, J.

This is an action upon a fire insurance policy. The case was tried before the court without the aid of a jury, resulting in a judgment in favor of plaintiff in the sum of $ 1684. Defendant has appealed.

The policy sued on was issued on August 10, 1926, by the defendant, a farmers' mutual fire insurance company, to one Mrs. Alice E. Smith, insuring, among other things, her dwelling house located in Marion township, Cole county, in the sum of $ 2400. The insurance was for five years beginning July 29, 1926, and ending July 28, 1931. The policy was issued subject to the constitution and by-laws of the company, which became a part of the policy.

On August 21, 1930, defendant was caused to attach the following clause to the policy:

"Loss or damage, if any, under this policy shall be payable to Prudential Insurance Company of America as far as their interest may appear. This company agrees to give thirty days' notice before cancellation of policy."

At the time this clause was attached to the policy plaintiff held a note (the amount of which is not disclosed in the testimony) secured by a deed of trust upon the property. On account of default in the terms of the deed of trust plaintiff caused the property to be foreclosed on December 1, 1930. The property brought less than the indebtedness secured by the deed of trust. The record is not definite as to when the property was conveyed to plaintiff by the trustee named in the deed of trust, the evidence merely showing that the trustee's deed had been recorded at the time of the trial. However, as the petition alleges that plaintiff was the sole owner of the property at the time of the fire we will assume, as against it, that the deed was delivered to it prior to that time.

The house was totally destroyed by fire on January 18, 1931, but defendant refused to pay the loss. The evidence showing that the house had a value at that time of $ 2400. The constitution and by-laws of the defendant provided that the coverage should be only two-thirds of the amount of the insurance, which limited the recovery to $ 1684.

The evidence shows that Mrs. Smith had paid her assessments up to the date of the fire and that no offer of a return of any part thereof had been made to anyone by the defendant. Plaintiff never at any time paid any assessment or any other sum of money to the defendant on account of the insurance policy. In fact, defendant at no time levied an assessment against plaintiff. Defendant did not know of the foreclosure of the property and that Mrs. Smith, the insured did not continue to be the owner thereof, until after the fire. No cancellation or surrender of the policy was made by any of the parties.

The constitution and by-laws provided that the losses should be paid by the defendant by assessments made upon its members and detailed the method of making such assessments. As the constitution and by-laws were adopted in 1917, defendant had no authority to make assessments in anticipation of losses. [See Laws 1927, p. 282.] Neither the policy, the constitution nor the by-laws contain any provision for forfeiture on account of foreclosure or, in fact, any provision relative to foreclosure, or transfer of the property, or any interest therein. However, they provided that no one except landowners and renters should become members and prohibited the transference of the property insured, but provided that a member of the association could withdraw at any time by giving four weeks' notice; that, when desiring to withdraw, if he did not deliver up his policy, he should give a written declaration of his intent to withdraw and until the expiration of the four weeks' period he should pay his dues and his policy should be in force during that time. They also provided that the association should have the right to cancel any policy upon its secretary giving thirty days' notice to the member by registered letter.

The petition alleges the issuance of the policy to Mrs. Smith, the then owner of the property. It then pleads the mortgage clause as follows: "That any loss thereunder should be payable to the Prudential Insurance Company of America, as far as their interest may appear." It then alleges that the house was totally destroyed by fire; that due notice was given the defendant of the fire and: "That plaintiff is now and was at the time of said fire the owner of said property and by reason whereof under the by-laws and constitution of defendant association was a member of said association and at all times had an insurable interest in said property and that the loss and damage was in excess of $ 2400." This was the only pleading of the constitution and by-laws, or mention of them in the petition.

Defendant insists that the mortgage clause appended to the policy is simply an open mortgage clause, and for that reason plaintiff had no rights in the policy, not possessed by Mrs. Smith, the insured, and that upon conveyance of the property to the plaintiff by the trustee's deed after the foreclosure of plaintiff's deed of trust, she had no further interest in it and, not having any insurable interest in it at the time of the fire, neither she nor the plaintiff could recover for the loss.

A policy that simply provides that it shall be payable to the mortgagee as his interest may appear, is called an "open mortgage clause," and is the character of mortgage clause pleaded in the petition. This clause is to be distinguished from the "union mortgage clause." In the latter clause it is stipulated, in substance, that in case of loss the policy is payable to the mortgagee and that his interest as payee shall not be invalidated or affected by any act or omission of the mortgagor. Where there is merely an open mortgage clause there is no privity created between the company and the mortgagee, he not being a party to the contract but merely an appointee to receive the proceeds in case of loss. His rights will be defeated by a breach of the conditions of the policy by the mortgagor. If for any reason the policy becomes void or ceases to exist as to the insured it is void and it ceases to exist as to the mortgagee. Whereas, the union mortgage clause operates as an independent contract of insurance between the mortgagee and the company upon the former's interest, which cannot be defeated by a breach of the conditions of the policy on the part of the mortgagor or solely by his act. [26 C. J., pp. 84, 85, 273, 274, 275; 2 Cooley's Briefs on Ins. (2 Ed.), pp. 1267 to 1272; 14 R. C. L., pp. 1037, 1038; Kabrich v. St. Ins. Co., 48 Mo.App. 393; Bidwell v. St. L. Floating Dock & Ins. Co., 40 Mo. 42, 46; Allen v. Fid. Phoenix Ins. Co., 285 S.W. 761, 764; Ford v. Iowa St. Ins. Co., 298 S.W. 741; See note 58, Am. St. Reports, pp. 667 to 673.]

When the property was conveyed to plaintiff at the foreclosure sale Mrs. Smith, the insured, lost all interest in the property. The policy became void as to her, regardless of the lack of a provision in the policy voiding it upon a change of interest in or title to the property. [See 26 C. J., p. 37; Morrision v. Tenn. Marine F. I. Co., 18 Mo. 262; Millard v. Beaumont, 194 Mo.App. 69, 74, 185 S.W. 547; White v. Merchants' Ins. Co., 93 Mo.App. 282; Essex Savs. Bk. v. Meriden Fire Ins. Co. (Conn.), 4 L.R.A. 759, 762; Edw. G. Budd B. & L. Assn. v. Kinsella (Pa. F. Ins. Co.) (Pa.), 156 A. 577; Macomber v. Cambridge, 62 Mass. 133; The Scania Ins. Co. v. Johnson, 22 Colo. 476, 45 P. 431; Brunswick S. Institution v. Com. Un. Ins. Co., 68 Me. 313, 315.] And this is true regardless of the fact that Mrs. Smith continued to pay her assessments and remained a member of the association. [Cumings v. Sawyer, 117 Mass. 30, 33, 34.] The policy cannot be held to have continued as to her on the theory of waiver or estoppel. [Mathes v. Westchester Fire Ins. Co., 6 S.W.2d 66.]

The constitution and by-laws prohibited the transference of the property and if the defendant did not know of the change in the ownership of it, of course, it did not consent to it. If the clause in question is to be construed as an ordinary open mortgage clause then whatever rights plaintiff had as mortgagee were terminated when the property was deeded to it under foreclosure. It then became the owner but defendant did not insure it as such and no rule of construction justifies this court in writing into the policy coverage of an interest that was not stipulated to be insured by the parties. It is quite apparent that no recovery can be had by anyone upon the policy if the mortgage is merely the standard open mortgage clause. [McKinney v. Western Assur. Co., 97 Ky. 474, 30 S.W. 1004; Hartford F. I. Co. v. Bryan (Ky.), 50 S.W.2d 74, 75.]

We are not basing our holding or opinion on any theory of forfeiture or that the policy contains any provisions against foreclosure or a change of interest in or title to the property but, solely, upon the ground of lack of any insurable interest in Mrs. Smith in the property at the time of the fire and that plaintiff's rights, if the mortgage clause is an open one, are dependent wholly upon hers, it having none greater.

We have examined the cases of Russell v. Home Ins. Co., 262 S.W. 385, and Patten v. Springfield F. & M. Ins Co., 11 S.W.2d 1101, cited by defendant. Both of these cases were decided by the Springfield Court of Appeals and involved open mortgage clauses, as well...