Rutherford v. Pearl Assur. Co., E-402

• Decision Date: 28 April 1964
• Docket Number: No. E-402,E-402
• Citation: 164 So.2d 213
• Parties: Lucille RUTHERFORD, Appellant, v. PEARL ASSURANCE COMPANY, a Corporation, Appellee.
• Court: Florida District Court of Appeals

Page 213

164 So.2d 213

Lucille RUTHERFORD, Appellant, v. PEARL ASSURANCE COMPANY, a Corporation, Appellee.

No. E-402.

District Court of Appeal of Florida, First District.

April 28, 1964.

On Petition for Certification June 2, 1964.

John M. Coe, of Coe & Coe, Pensacola, for appellant.

Beggs, Lane, Daniel, Gaines & Davis, Pensacola, for appellee.

CARROLL, DONALD K., Judge.

The plaintiff in an action on a fire insurance policy has appealed from a final judgment entered by the Circuit Court for Escambia County, dismissing her complaint.

The basic question before us for determination is whether, when the alleged insurable interest is a vendor's lien to secure the unpaid portion of the purchase price of real property, the insured must allege and prove that he has suffered an actual pecuniary loss by a fire or that the security subject to the vendor's lien has been seriously jeopardized by a fire, in order to recover under a fire insurance policy in this state.

This question arose from the allegations of the plaintiff's complaint, averring that she was the owner of certain lots on which was situated a certain dwelling house which she sold on August 1, 1960, subject to a vendor's lien in her favor to secure the unpaid portion of the purchase price, towit: $3,518; that prior to the said sale the defendant had issued its insurance policy indemnifying the plaintiff against fire loss during its term to the amount of $8,000; that on or about August 17, 1960, during the said term, the said property was 'totally destroyed by fire' under circumstances rendering the defendant liable under its said policy; that, although through oversight no endorsement had been made on the policy showing the said change of ownership and consequent change of beneficiary, the plaintiff duly notified the defendant concerning the said fire, but the latter notified her that it was not liable to her or anyone on account of the loss and refused to pay, advising her that she had no further insurable interest in the said property. The plaintiff further alleges in her complaint that, under Section 627.01041, Florida Statutes, F.S.A., she has an insurable interest in the property to the amount of her vendor's lien. She then asks for judgment in the sum of $3,518, together with interest and attorney's fees.

To this complaint the defendant filed a motion to dismiss for failure to state a cause of action. In its order granting this motion the court states that it was of the opinion 'that the allegation of an insurable interest in the Plaintiff standing alone is not sufficient but that the Plaintiff must allege and prove an actual loss or that the security subject to her vendor's lien has been seriously jeopardized. * * *' The court states further that it had given the plaintiff leave to amend her complaint, but she declined to do so, and the court then adjudges that the plaintiff take nothing by her action, etc.

Resolving the problem confronting us on this appeal requires a consideration of the various cases supporting two lines of authority known as the 'Wisconsin Rule' and the 'New York Rule,' and a determination as to which rule is more nearly consonant with the laws and public policies of the State of Florida. Each of the said rules is supported by highly respectable authority. Couch, Insurance, 2nd, Ed., Vol. III, Sec. 24:17.

The so-called Wisconsin Rule, which has apparently been recognized by a minority of courts, is essentially that a contract of fire insurance is a contract of indemnity, and, where no pecuniary loss has been sustained, there can be no recovery. The argument for this view seems to be that, to permit an insured to keep the proceeds of both the mortgage obligation and the insurance policy, offends public policy, which frowns upon placing an insured in a position to profit by a loss which he may be tempted to cause himself or be careless in failing to prevent. The leading cases supporting the Wisconsin Rule are Ramsdell v. Insurance Co. of North America, 197 Wis. 136, 221 N.W. 654 (1924); Power Building and Loan Ass'n v. Ajax Fire Insurance Co., 110 N.J.L. 256, 164 A. 410 (1933); Beman v. Springfield F. & M. Ins. Co., 303 Ill.App. 554, 25 N.E.2d 603 (1940); Edlin v. Security Ins. Co., 160 F.Supp. 487 (S.D.Ill.1957); and Glen Falls Insurance Company v. Sterling, 219 Md. 217, 148 A.2d 453 (1957). See also Darrell v. Tibbitts, 5 Q.B.D. 560 (1879), for the comparable English rule.

The New York Rule, which we think reflects the better view and the weight of authority, is that, barring any agreement to the contrary, a fire insurance policy is a contract to insure against fire loss, and its premiums are assumed to represent the fair equivalent of the obligation contracted for by the insurer without knowledge of the existence of collateral remedies. The leading case laying down this doctrine is Alexandra Restaurant, Inc. v. New Hampshire Ins. Co., 272 App.Div. 346, 71 N.Y.S.2d 515 (1947), affirmed by the New York Court of Appeals in 297 N.Y. 858, 79 N.E.2d 268 (1948). Among the cases recognizing and following the New York Rule are Board of Trustees of First Congregational Church of Austin v. Cream City Mutual Ins. Co., 255 Minn. 347, 96 N.W.2d 690 (1959); In Re Future Mfg. Co-op., 165 F.Supp. 111 (N.D.Calif.1958); Koppinger v. Implement Dealers Mutual Ins. Co., 122 N.W.2d 134 (N.D.1963); Pink v. Smith, 281 Mich. 107, 274 N.W. 727 (1937); Dubin Paper Co. v. Insurance Co. of North America, 361 Pa. 68, 63 A.2d 85, 8 A.L.R.2d 1393 (1949); and Heidisch v. Globe & Republic Ins. Co. of America, 368 Pa. 602, 84 A.2d 566, 29 A.L.R.2d 884 (1951).

Probably the leading case outside of New York recognizing the New York Rule is Board of Trustees of First Congregational Church of Austin v. Cream City Mutual Ins. Co., 255 Minn. 347, 96 N.W.2d 690 (1959), in which the Minnesota Supreme Court was faced with the same problem we are facing in the present appeal--whether to adopt the Wisconsin Rule or the New York Rule. In the said case the insurer had issued a valued fire insurance policy covering certain property owned by the plaintiff--a church. The church sold the said property on an executory contract to a municipality, and after the sale the property was destroyed by fire, at which time a principal balance of $75,000 was still owing to the church, which held legal title to secure its reserved right of possession which right was to expire 53 days after the fire. The main issue before the court was whether under these circumstances the insurer was entitled to be subrogated to the church's claim, if any, against the city. The Supreme Court of Minnesota held there was no such subrogation and in a scholarly opinion discussed the Wisconsin and the New York Rules, the authorities supporting each rule, and finally concluded that the Alexandra Restaurant case, supra, and an earlier Minnesota case to the same effect 'not only represent the better reasoning on the subject but also are in harmony with the public policy as expressed by the legislature in the enactment of the valued policy statute, § 65.05.' The court then mentioned two cases in which it had sustained recoveries far in excess of the value of the insured's property.

As stated above, the leading case espousing the New York Rule is the decision of the New York Supreme Court, Appellate Division, in Alexandra Restaurant, Inc. v. New Hampshire Ins. Co., supra. In that case the lessee of a restaurant was insured under a fire policy as to improvements of a structural character. The landlord became obligated to repair the fire damage that occurred, and did so. The New York Supreme Court, Appellate Division, held that the lessee was entitled to recover the amount of the loss on his fire policy, since that policy insured the property and not the debt due to the lessee from the landlord. In reaching this conclusion the court relied upon the decision of the New York Court of Appeals in Foley v. Manufacturers' Builders & Fire Ins. Co., 152 N.Y. 131, 46 N.E. 318, 43 L.R.A. 664 (1897), in which case the owners of certain property had a contract with a third person to build houses, with the risk of loss pending completion upon the contractor. The owners had also insured the property. A fire occurred before completion of the construction contract and the owners sued on the policy. The insurer contended that the owners had not suffered any 'loss' because the contractor was obligated to make good the loss. In rejecting this contention the New York Court of Appeals said:

"The contention of the defendant rests upon a misconception of the insurer's contract, and as to the insurable interest of the plaintiffs in the structures. The defendant, by its contract, undertook to insure the plaintiffs against loss by fire, not exceeding the sum specified, to the 'described property,' the loss or damage to be ascertained 'according to the actual cash value' of the property at the time of the fire. The parties by this contract made the value of the property insured, within the limit, the measure of the insurer's liability. * * * But the contract relations between the plaintiffs and the contractors is a matter in which the defendant has no concern."

Upon the authority of the Foley decision and other cases, the New York Supreme Court in the Alexandra Restaurant case directed a judgment for the plaintiff in the sum of $3,954.89 (the agreed amount of the damages caused by the said fire), saying:

'Plaintiff concededly had an insurable interest when the policy was issued and at the time of the loss. The loss was not caused by any wrongful act of either the landlord or the insured. Defendant's policy insured the property and not the debt due the insured from its landlord.'

Like the Minnesota Supreme Court in the Cream City Mutual Ins. Co. case, supra, we are of the view that the cases recognizing the New York Rule not only represent the better reasoning on the subject but also are in harmony with the public policy as...