Smith v. Union Ins. Co.

• Decision Date: 15 June 1903
• Citation: 25 R.I. 260,55 A. 715
• Parties: SMITH v. UNION INS. CO. et al.
• Court: Rhode Island Supreme Court

55 A. 715

25 R.I. 260

SMITH

v. UNION INS. CO. et al.

Supreme Court of Rhode Island.

June 15, 1903.

Action by Daniel Smith against the Union Insurance Company and others. On demurrers to the declaration. Overruled.

Argued before STINESS, C. J., and TILLINGHAST and DOUGLAS, JJ.

Tillinghast & Murdock, for plaintiff.

Van Slyck & Mumford, for defendants.

DOUGLAS, J. These cases are brought by the mortgagee of certain real estate, the buildings upon which have been destroyed by fire, to recover the amounts specified in three policies of insurance in the standard form, each containing the following clause:

"Loss or damage, if any, under this policy, shall be payable to Daniel Smith, as the mortgagee (or trustee), as interest may appear, and 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 within described property, nor by any foreclosure or other proceedings or notice of sale relating to the property, nor by any change in the title or ownership of the property, nor by the occupation of the property for purposes more hazardous than are permitted by this policy: provided, that in case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee (or trustee) shall, on demand, pay the same.

"Provided, also, that the mortgagee (or trustee) shall notify this company of any change of ownership or occupancy or increase of hazard which shall come to the knowledge of said mortgagee (or trustee) and, unless permitted by this policy, it shall be noted thereon and the mortgagee (or trustee) shall, on demand, pay the premium for such increased hazard for the term of use thereof; otherwise this policy shall be null and void.

"This company reserves the right to cancel this policy at any time as provided by its terms, but in such case this policy shall continue in force for the benefit only of the mortgagee (or trustee) for ten days after notice to the mortgagee (or trustee) of such cancellation and shall then cease, and this company shall have the right, on like notice, to cancel this agreement.

¹("In ease of any other insurance upon the within-described property, this company shall not be liable under this policy for a greater portion of any loss or damage sustained, than the sum hereby insured bears to the whole amount of insurance on said property issued to or held by any party or parties having an insurance interest therein, whether as owner, mortgagee, or otherwise.)

"Whenever this company shall pay the mortgagee (or trustee) any sum for loss or damage under this policy and shall claim that, as to the mortgagor or owner, no liability therefor existed, this company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made under all securities held as collateral to the mortgage debt, or may at its option pay to the mortgagee (or trustee) the whole principal due or to grow due on the mortgage with interest, and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities; but no subrogation shall impair the right of this mortgagee (or trustee) to recover the full amount of his claim."

The plaintiff held two mortgages on the property insured to secure notes made by a former owner of this property from whom it had come to Thomas Cullam, named as the insured in the policies. Before the taking out of the policies Cullam had conveyed the estate to his sister Melinda Paradie, as the declaration alleges, "without consideration," and she took out these policies in his name.

To the declaration in each case the defendants have demurred, alleging as grounds of demurrer: (1) It appears that, at the time of the issuing the policy in said declaration mentioned to one Thomas Cullam, said Thomas Cullam had no insurable interest in the property claimed to have been insured by said policy. (2) It appears that said policy, it not being otherwise provided by agreement indorsed thereon or added thereto, was void:

(a) Because the interest of the insured was other than unconditional and sole ownership;

(b) because the subject of insurance was a building or group of buildings on ground not owned by the insured in fee simple. (3) There appears no consideration for the promise alleged to have been made by the defendant to the plaintiff. (4) It does not appear what was the whole insurance, whether valid or not, or by solvent or insolvent insurers, covering the property described in the policy of insurance in said declaration mentioned.

The first three of these demurrers are substantial; the fourth does not affect the merits of the case, but may be obviated by amendment if necessary.

The first question raised is whether the interest of Thomas Cullam alone was insured; for, if so, and he had no interest, nothing was insured; or, if he had no insurable interest it was not in the interest which it was represented to be, and so was not insured, and the policy was void from the beginning.

The defendant contends that this is the effect of the policy in question; and the plaintiff, as mere assignee of the loss accruing to the insured, can recover nothing, as an insured person who has no Interest can lose nothing. His reasoning is perfectly sound if his interpretation of the contract is correct. To this effect is the quotation from Judge Story In Carpenter v. Providence-Washington Insurance Company, 10 Pet. 495. 10 L. Ed. 1044, as follows: "It is clear, both upon principle and authority, that an assignment of a policy by the insured only covers such interest in the premises as he may have at the time of the insurance and at the time of the loss. It is the property of the insured, and his alone, that is designed to be covered; and when he parts with his title to the property he can sustain no future loss or damage by fire, but the loss, if any, must be that of his grantee. The rights of the assignee cannot be more extensive under the policy than the rights of the assignor; and as to the grantee of the property he can take nothing by the grant of the policy, since it is not in any just or legal sense attached to the property or an incident thereto."

And to the same effect are the words of Judge Harris in Grosvenor v. Atlantic Fire Insurance Co., 17 N. Y. 391. He says: "The contract was made with McCarthy, the mortgagor; but the policy provides that in case of loss such loss shall be payable to the plaintiff. What is the legal effect of this provision? Without it the plaintiff could have no claim against the defendant for Indemnity. Is this provision to be regarded as an appointment of the plaintiff to receive any money which might become due from the insurers by reason of any loss sustained by the mortgagor, or has it the effect to render the policy, which would otherwise be a contract to indemnify the mortgagor against loss, a contract to indemnify the mortgagee? * * * It seems to me to be very clear that it was the intention of all the parties that the interest of the mortgagor, and not that of the mortgagee, should be insured. It is stated in the policy that the property insured is the property of McCarthy, and that be is the person insured. McCarthy paid the premium. He made the contract. His interest as owner, and not that of the plaintiff as mortgagee, was the subject of the insurance. The plaintiff was merely the appointee of the party insured to receive the money which might become due him from the insurers upon the contract. The provision in the policy in this respect had no more effect upon the contract itself than it would if it had been provided that the loss for which the insurers should become liable should be...