State ex rel. American Fire Insurance Co. v. Ellison

• Decision Date: 21 December 1916
• Citation: 190 S.W. 879,269 Mo. 410
• Parties: THE STATE ex rel. AMERICAN FIRE INSURANCE COMPANY v. JAMES ELLISON et al., Judges
• Court: Missouri Supreme Court

190 S.W. 879

269 Mo. 410

THE STATE ex rel. AMERICAN FIRE INSURANCE COMPANY v. JAMES ELLISON et al., Judges

Supreme Court of Missouri

December 21, 1916

Judgment Quashed.

Fyke & Snider for relator.

If the rule in Springfield Steam Laundry Co. v. Insurance Co., 151 Mo. 90, is applicable to this case the Court of Appeals has refused to follow that rule. That court says it is not applicable. The reason for the distinction is that this court sustained the contract condition on the ground the company might have been willing for the premium charged to insure mortgaged property but not to continue the insurance if the risk was enhanced by proceedings to foreclose the mortgage. Such is not the reason given by this court for the finding, but it is given as the probable reason why the contracting parties used the provision in the policy. The reason given by this court for the finding is, that the provision being in the contract, it must be enforced as made. "If the parties make such contracts they have no right to expect courts to disregard the law in construing them," and "the court has no power in the absence of fraud or mistake to relieve from the obligation of contracts." The Court of Appeals has disregarded the rule of this court in construing this policy for these reasons.

Lathrop Morrow, Fox & Moore, Charles M. Howell and Joseph S. Brooks for respondents.

(1) The clause avoiding the policy, "If with knowledge of the insured foreclosure proceedings be commenced . . . by virtue of any mortgage, or deed of trust," is upheld by the courts only on the ground that such proceedings, or the giving of such notice, tend to increase the moral risk. Laundry v. Insurance Co., 151 Mo. 90; Titus v Insurance Co., 81 N.Y. 410; Algase Co. v Corporation of Royal Exchange Assurance, 122 P. 986; Kelly Co. v. Ins. Co., 47 So. 742; Medley v. Insurance Co., 47 S. E. (W. Va.) 101; Findlay v. Ins. Co., 52 A. 429; 2 Cooley, Briefs on Insurance, 1736 et seq.; Trabue v. Insurance Co., 121 Mo. 75. (2) Under the undisputed facts in this case there was and could be no increase in the moral risk because of the publication of notice of sale, and the insurance will not be forfeited for a mere technical violation of the policy. Cone v. Insurance Co., 117 N.W. 307; Insurance Co. v. Gibe, 44 N. E. (Ill.) 490; Kyte v. Assurance Co., 10 N. E. (Mass.) 518; Schloss v. Ins. Co., 37 So. 701; Forward v. Insurance Co., 37 N. E. (N. Y.) 615; Weigen v. Insurance Co., 73 N.W. 862.

FARIS, J. Bond, J., dissents.

OPINION

In Banc.

Certiorari.

FARIS J.

This is an original proceeding by certiorari, whereby it is sought to quash the judgment heretofore rendered by the Kansas City Court of Appeals in the case of Terminal Ice & Power Company, appellant, v. American Fire Insurance Company, respondent, 187 S.W. 564, on the ground that the opinion therein is contrary to the opinion of this court in the case of Springfield Steam Laundry Co. v. Traders' Insurance Co., 151 Mo. 90, 52 S.W. 238.

For convenience and brevity in designating the parties to that action and the parties to this one, we shall refer to the Terminal Ice & Power Company as "plaintiff," to The American Fire Insurance Company as "defendant," and to the parties in the instant case as "relator" and "respondents," respectively.

The original action (the judgment wherein relator by this proceeding seeks to quash), was brought by plaintiff upon a policy of insurance issued by defendant, who is the relator herein. This policy of insurance provided, among other things not here pertinent, as follows:

"This entire policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void if . . . with the knowledge of the insured foreclosure proceedings be commenced, or notice given of the sale of any property covered by this policy by virtue of any mortgage, or trust deed, or if any change other than by the death of the insured take place in the interest, title or possession of the subject of insurance whether by legal process or judgment, or voluntary act of the insured."

Other facts in the case extrinsic to the clause above quoted from the policy of insurance, and which were considered by the learned Kansas City Court of Appeals as warranting the views held and the judgment entered by them, are thus clearly and succinctly stated by that learned court:

"The property insured was a part of a manufactory owned by W. F. Lyons, who in 1908 transferred it to a corporation known as the W. F. Lyons Ice & Power Company, of which he was the principal stockholder and moving spirit. The corporation began its business career (which was short-lived and disastrous) by issuing and selling bonds for $ 100,000, which it secured by a first mortgage on all its property. Afterwards on November 5, 1909, it further encumbered the property with a second mortgage or trust deed executed and delivered to John H. Lynds, trustee, to secure notes for $ 20,000 for money borrowed for the use of the company. These notes were owned by Howard Vanderslice, J. S. Chick, John H. Lynds and Fred Wolferman, and in December, 1909, the control of the corporation and its property and affairs was surrendered to these four holders of the second mortgage notes, whose number was reduced to three by the withdrawal of Wolferman, who sold his interest to the others. In 1910, suit was brought to foreclose the first mortgage and that suit was pending when the policy in question was issued. To protect their interests as second mortgages, Vanderslice, Chick and Lynds bought and became the owners of a large part of the bonded indebtedness and thereby obtained control of the foreclosure suit. They also became the owners of all of the capital stock of the W. F. Lyons Ice & Power Company, and Lyons retired from the corporation and its affairs. At that time the corporation was on the verge of bankruptcy, had lost its credit and had a bad reputation in the business world. Vanderslice, Chick and Lynds, in an obvious effort to ward off the attacks of creditors as well as to escape other consequences of such bad reputation, had the name of the corporation changed to the Terminal Ice & Power Company, early in 1911, and incorporated another company under the name of the Sheffield Ice Company, which operated the factory under a lease from the Terminal Company for a term of two years. Both of these companies were controlled by Vanderslice, Chick and Lynds, who owned all the stock of both, the stock of the Sheffield Company being paid by the transfer to that company of the second mortgage notes . . .

"On April 2, 1913, while the factory was being operated by the Sheffield Company, plaintiff gave a written option to another corporation, the City Ice Company, to purchase the plant, and in February, 1913, executed a lease to the City Ice Company under which that company as lessee took possession of the property about June 1, 1913, and proceeded to operate the factory. The fire occurred June 17th, and on June 30th, the City Ice Company formally notified plaintiff in writing of its decision to exercise the option and afterwards the sale was consummated.

"At about the time the City Ice Company took charge of the plant under the lease and shortly before the fire, Vanderslice, Chick and Lynds, acting in the name of the Sheffield Company, the bookholder of the second mortgage notes which then amounted to about $ 30,000, had the trustee in the deed of trust securing the notes, advertise the plant for sale under the terms of that trust deed.

"This sale was made about two weeks after the fire, and the property was sold to Vanderslice, who bid $ 2,000, and a trustee's deed was executed and delivered to him by Lynds, the trustee. The attorney for Vanderslice, Chick and Lynds testified that the advertisement and sale of the property under the second trust deed was pursuant to the request of all the parties in interest, viz., his clients and the City Ice Company, who desired 'this title straightened out.' We understand him to mean that the purpose of the sale was to secure the plant against the attacks of the general creditors of the old Lyons company in order that the property might be sold and conveyed, clear of all incumbrances, to the City Ice Company."

The policy of insurance on which the action was instituted out of which this proceeding grew, was issued on September 20, 1912. The fire which destroyed the property occurred on the 17th day of June, 1913. Under these facts it is plain that neither the antecedent nor the subsequent acts of the owners of the property, nor the facts touching the title thereto, can be of any help in the case, except upon the theory that we are to read into the insurance contract between the parties a provision that the clause therein against a foreclosure, or a sale, or advertisement for sale, under a deed of trust, shall render the policy void, only when a violation of it shall actually serve in the opinion of the trial court or jury, to increase the hazard. For clearly the sole reason for the offering of proof of these facts was to show that the hazard was not in fact increased.

The facts of the case and the condition of the ownership at and after the making of the contract of insurance (till the fire happened), run thus: The plaintiff in the suit below owned the insured property. On this property there was a first deed of trust to secure bonds in the sum of $ 100,000. Vanderslice, Chick and Lynds owned "a large part of the bonded indebtedness" above-mentioned. There was also on the property of plaintiff, Terminal Ice & Power Company, a second mortgage (the one now here vexing us) securing notes amounting, principal and interest, to $ 30,000. These notes formerly held by Vanderslice, Chick and Lynds, had been by them...