Savarese v. Ohio Farmers' Ins. Co. of Le Roy, Ohio

• Decision Date: 04 October 1932
• Citation: 182 N.E. 665,260 N.Y. 45
• Parties: SAVARESE et al. v. OHIO FARMERS' INS. CO. OF LE ROY, OHIO, et al.
• Court: New York Court of Appeals Court of Appeals

260 N.Y. 45

182 N.E. 665

SAVARESE et al.

v.OHIO FARMERS' INS. CO. OF LE ROY, OHIO, et al.

Court of Appeals of New York.

Oct. 4, 1932.

Submission of controversy on an agreed statement of facts between Pasquale Savarese and another, plaintiffs, and the Ohio Farmers' Insurance Company of Le Roy, Ohio, and others, defendants. From a judgment of the Appellate Division (234 App. Div. 248, 254 N. Y. S. 683) for defendants, plaintiffs appeal.

Reversed, and judgment directed for plaintiffs.

LEHMAN, O'BRIEN, and HUBBS, JJ., dissenting.

Appeal from Supreme Court, Appellate Division, First department.

Samuel D. Cohen, of New York City, for appellants.

Joseph Greenhill, E. J. Dimock, Barent L. Visscher, and Hazel Flagler, all of New York City, for respondent Ohio Farmers' Ins. Co.

Alan L. Dingle, of New York City, for respondent Markowitz.

Walter Gordon Merritt, of New York City, and Donald Knox Miller, for National Board of Fire Underwriters, amicus curiae.

CRANE, J.

Does the repair of the premises by the owner after a fire prevent the mortgagee from recovering the insurance payable to him?

On the 6th day of June, 1927, the defendant Ohio Farmers' Insurance Company of Le Roy, Ohio, issued its policy of insurance whereby it insured Loretta Realty & Finance Corporation for the term of three years from the 26th day of May, 1927, to the 26th day of May, 1930, against all direct loss or damage by fire to the extent of $7,500 on the brick building No. 16 West 119th street, New York City. The property was thereafter conveyed to Leopold Kirven, the defendant, and the change of ownership duly noted on the policy. Within the period covered by the insurance, and on the 28th day of June, 1929, a fire occurred, causing damage to the extent of $4,230.

At the time of the issuance of said policy and at the time of the fire, the plaintiffs, Pasquale Savarese and Giacomo Savarese, were the owners of a bond secured by a mortgage upon said premises for $7,500, upon which there was due at the time of the loss $6,500, with interest from April 1, 1929. The mortgage provided that the mortgagor should keep the premises insured against loss by fire for the benefit of the mortgagee. The policy referred to contained the usual standard mortgagee clause, reading as follows: ‘Loss or damage, if any, under this policy, shall be payable to pasquale Savarese & Giacomo Savarese as mortgagee, as interest may appear, and this insurance, as to the interest of the mortgagee only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property,’ etc.

The defendants Markowitz and Grey, as contractors with the owner, repaired the premises, so that by the 6th day of September, 1929 , the property was restored to the condition in which it existed before the fire. As compensation for their work, the owner transferred to Markowitz and Grey his interest in the fire insurance policy, and the defendant insurance company stands ready to pay them the sum of $1,178.64, by applying, in calculation, the pro rata provisions of the policy. Judgment for this amount has been awarded to these contractor-defendants, and they have not appealed from the amount adjudged to be due. The plaintiffs, mortgagees, have appealed, claiming the full benefit of the policy of insurance and the recovery of the full amount of the loss, $4,230, unimpaired by any act of the owner in making repairs and restoring the property to its previous good condition.

The Appellate Division has taken the position, with some force of reasoning, and with some authority to support it, that the mortgagees sustained no damage, because when this action was commenced the security for their mortgage was the same building in the same state of repair as at the time the mortgage was taken. At first blush this conclusion seems quite plausible, but upon further analysis must yield to other considerations.

Under the mortgagee clause the policy issued by the defendant insured the mortgagees' interest as fully and to the same extent as if they had taken out a policy directly with the insurance company. In Eddy v. London Assurance Corp., 143 N. Y. 311, 322,38 N. E. 307, 309,25 L. R. A. 686, this court said: ‘The effect of the mortgage clause hereinbefore set forth is to make an entirely separate insurance of the mortgagee's interest, and he takes the same benefit from his insurance as if he had received a separate policy from the company, free from the conditions imposed upon the owners.’

Quoting from Hastings v. Westchester Fire Ins. Co., 73 N. Y. 141, we recognized this rule again in Goldstein v. National Liberty Ins. Co. of America, 256 N. Y. 26, 32, 175 N. E. 359, 361, and said: ‘It (the mortgagee clause), was an independent agreement partaking in no sense of the character of an assignment of a policy of insurance, but one in which the mortgagees were recognized as a separate party, having distinct rights, and entitled to receive the full amount of insurance money, without any regard whatever to the owner of the property.’

And in Heilbrunn v. German Alliance Ins. Co. of New York, 140 App. Div. 557, 559, 125 N. Y. S. 374, 376, affirmed 202 N. Y. 610, 95 N. E. 823, the court said: ‘It [the mortgagee clause] created a new and distinct contract, which places the mortgagee upon another and a different footing from that of a mere assignee or appointee to receive the loss, and removes him beyond the control or effect of any act or neglect of the owner of the property, and renders such mortgagee a party who has a distinct interest separate from the owner, embraced in another and a separate contract. The interest of the owner and of the mortgagee are regarded as distinct subjects of insurance.’ See, also, McDowell v. St. Paul Fire & Marine Ins. Co., 207 N. Y. 482, 101 N. E. 457.

The plaintiffs Savarese had an insurable interest in this building to the extent of $7,500. Independent of the owner they could have taken out a policy of insurance against loss by fire directly payable to them, and separate and distinct from any policies taken or held by the owner. ‘Whether the subject-matter of insurance be a ship or a building or a life, or whatever else it may be, although in popular language it may be called and insurance upon the ship or building or life, or some other thing, yet it is strictly an agreement with some person interested in the preservation of the subject-matter, to pay him a sum which shall amount to an indemnity, or a certain sum agreed upon as an indemnity, in case his interest in the subject-matter shall suffer diminution of value, from certain specified causes, or in certain specified contingencies.’ 1 May on Insurance (4th Ed.), § 6.

Thus it has been held that recovery may be had by the mortgagee on his insurance policy, although his security under the mortgage is perfectly good and valid. Kernochan v. New York Bowery Fire Ins. Co., 17 N. Y. 428, 435. The court there said: ‘The loss against which the plaintiff [mortgagee] is insured, is, by the very language of the contract, ‘to the property insured;’ the destruction in whole or in part of the value of the property by the total or partial burning of the property. In case of such loss it is stated that it is ‘to be paid within sixty days after due notice and proof thereof by the insured,’ in conformity to the policy. Whether the loss by diminishing the mortgage security, endangers the collection of the debt, or the security remains ample, is not by the contract made of any importance; in either case it is insured against and the amount of it is to be paid.'

A mortgagee, therefore, who has insured his interest at his own expense, with no agreement or understanding with the mortgagor, is not required to exhaust his remedy upon the mortgage before enforcing his policy; and he can maintain an action thereon, although the property undestroyed is equal in value to the amount of the mortgage debt. Excelsior Fire Ins. Co. v. Royal Ins. Co., 55 N. Y. 343, 14 Am. Rep. 271.

From these authorities we must conclude that whether the mortgagee takes out his own insurance, or whether he is insured by the mortgagor, under the usual mortgagee clause in the insurance policy, his right to recover in case of a fire is not dependent upon the sufficiency or insufficiency of the mortgage security after the fire.

May on Insurance (4th Ed.), volume 2, § 424, says: ‘That after the loss the mortgagor replaces the property in as good condition as it was before, or the mortgagee, by selling other securities which he holds, reduces his debt, however it may affect the equities between him and the mortgagor, does not affect the terms of the contract between the mortgagee and the insurers. The contingency having arrived upon which the loss was payable, it must be paid according to the status of the interest at the time when the contingency happened; nor can the insurers require the mortgagee first to exhaust his remedy against the mortgagor before calling upon them for indemnity.’

When we further analyze the terms of the policy and the situation of the mortgagee, reason also points to the conclusion that when a fire occurs the insurance company must pay the loss to the mortgagee in accordance with its contract with him. The mortgagor benefits by such payment as the insurance money reduces the amount of the mortgage debt. Waring v. Loder, 53 N. Y. 581. The value taken out of the property by the fire is taken off the mortgage by the payment of the insurance money, and the parties remain in the same relative position after as before the fire.

The policy gives to the insurance company certain options which are as binding upon the mortgagee as upon the mortgagor. One of them relates to repairs, and reads as follows:

‘It shall be optional with this Company to take all, or any part, of the articles at the agreed or appraised value, and also to repair, rebuild, or replace the property lost or damaged with other of like kind and quality...