Tarrant Land Co. v. Palmetto Fire Ins. Co.

• Decision Date: 16 January 1930
• Docket Number: 6 Div. 483.
• Citation: 125 So. 807,220 Ala. 428
• Parties: TARRANT LAND CO. ET AL. v. PALMETTO FIRE INS. CO.
• Court: Alabama Supreme Court

125 So. 807

220 Ala. 428

TARRANT LAND CO. ET AL. v. PALMETTO FIRE INS. CO.

6 Div. 483.

Supreme Court of Alabama

January 16, 1930

Appeal from Circuit Court, Jefferson County; William M. Walker Judge.

Bill for subrogation by the Palmetto Fire Insurance Company against S. M. Casey, J. D. Harper, the Fidelity Building &amp Loan Association, and the Tarrant Land Company. From a decree overruling demurrers to the bill, respondents Tarrant Land Company and Casey appeal. Reversed and remanded.

J. K Brockman, of Birmingham, for appellants.

Coleman, Coleman, Spain & Stewart, of Birmingham, for appellee.

FOSTER J.

A bill in equity was filed in this case, seeking subrogation based on the following facts: A policy of fire insurance was issued by appellee to one Casey. Casey later executed a mortgage on the property to a company named in the bill as the Fidelity Building & Loan Association, whereupon a "New York standard mortgage clause was attached to said policy of insurance in favor of" said loan company. Afterward said Casey executed to one Harper a lease sale or conditional sale contract for the sale of the property, a copy of which is attached, and the policy was duly transferred and assigned to him. The policy of insurance is not attached nor otherwise shown, neither is the "mortgage clause." There is copied in the bill a clause prohibiting a change in the interest, title, or possession of the subject of insurance. The house was burned, and the appellee paid the mortgagee, took a transfer of the mortgage, and seeks to enforce it under the right of subrogation and the transfer.

The right of subrogation has been the subject of many decisions and text-writers, and we feel that the principles of law which control the case are in the main settled as follows: When the policy, both by its face and by the intention of the parties, insures the mortgagor for his own benefit and at his own expense, no contract otherwise appearing, payment of the insurance money to the mortgagee goes to the benefit of the mortgagor in satisfaction pro tanto of the mortgage debt, and the insurer is not entitled to subrogation. 26 C.J. 461; Hackett v. Cash, 196 Ala. 403, 72 So. 52; annotations in 52 A. L. R. 278; 7 Cooley's Briefs on Ins. (2d Ed.) 6720.

Where the interest of the mortgagee is separately insured for his own benefit and at his own expense, and a loss occurs before payment of the mortgage, the insurer in paying the mortgagee is entitled to an assignment as a subrogee, and may enforce the mortgage against the mortgagor. 7 Cooley's Briefs on Ins. (2d Ed.) p. 6716; 26 C.J. 461.

But in the former instance, though the mortgagor procures the insurance for his benefit and pays the expense, the insurer upon payment of the loss to the mortgagee is entitled to subrogation, if the mortgage clause provides that the insurance shall be valid and binding for the benefit of the mortgagee only, if by reason of a breach of some term of the policy it has been forfeited as to the mortgagor, and also contains a stipulation looking to an assignment to the insurer of the whole or a part of the securities held by the mortgagee. 7 Cooley's Briefs on Ins. (2d Ed.) 6717, 6718; Hackett v. Cash, supra; annotations in 52 A. L. R. 278-280.

By the weight of authority this right of subrogation is said to be secured, though the clause does not expressly grant it to the insurer, but does expressly insure the mortgagee, notwithstanding defaults of the insured sufficient to avoid it as to him. Authorities supra; First Nat. Bank v. Springfield F. & M. Ins. Co., 104 Kan. 278, 178 P. 413; Hastings v. Westchester F. Ins. Co., 73 N.Y. 141. Though in Massachusetts it was held that this right of subrogation must be expressly stipulated, in order to be effective, notwithstanding the mortgage clause recites that no act of the mortgagor shall affect the rights of the mortgagee. Graves v. Hampden F. Ins. Co., 10 Allen (Mass.) 281; Allen v. Watertown F. Ins. Co., 132 Mass. 480. This is now said to be controlled by statute in that state. Tabbut v. Am. Ins. Co., 185 Mass. 419, 70 N.E. 430, 102 Am. St. Rep. 353; Jenks v. L. & L. & G. Ins. Co., 206 Mass. 591, 92 N.E. 998.

If such clause giving the right of subrogation is conditioned upon a "claim that as to the mortgagor or owner no liability therefor existed," the insurer must not only "claim" nonliability to the mortgagor, but must allege and prove facts which under the policy would entitle it to exemption from liability to the mortgagor. 7 Cooley's Briefs on Ins. (2d Ed.) 6720.

In order to determine that there is equity in the bill, and that the right of appellee to subrogation exists, as shown by its averments, we must conclude that the bill sufficiently shows facts which under the policy have the effect of avoiding it as to the insured. As we have stated before, the mortgage clause is not shown by this record, other than a statement that it is a New York standard mortgage clause. Counsel for appellee have copied in their brief a clause which they say is in the words of the policy provision, and it is the same as that treated in many authorities.

We have shown that most of the courts extend the right of subrogation, though the clause does not expressly so provide, if it does provide in effect that the policy is binding upon the insurer as to the mortgagee, though forfeited as to the mortgagor or owner on account of the breach of a condition in it. But, in any event, to justify subrogation, there must be a stipulation containing at least one, or possibly both, of such provisions.

The allegations of the bill show that the policy was first issued to the owner before the mortgage was made, and when the mortgage was executed the New York standard mortgage clause was attached in favor of the mortgagee. The proper interpretation of such allegation, construed most strongly against the pleader, is that the mortgagor procured the insurance for himself at his own expense, with loss to the mortgagee as his interest may appear, without further stipulation.

We cannot judicially know the contents of the New York standard mortgage clause, in the absence of a statute prescribing its terms. Northern Ins. Co. of N.Y. v. Nat. Union F. Ins. Co., 35 Cal.App. 481, 170 P. 434. 7 Cooley's Briefs, supra, p. 6718, sets out two different forms; one it describes as the "union mortgage clause," similar to what appellee has copied in his brief, but not in the record, and another which is said to apply to Maine, Massachusetts, Minnesota, and New Hampshire.

The rules which control our interpretation of the bill require that we shall treat its allegations as though there were no special stipulations in the mortgage clause. Doing this, it is necessary that we apply the principle first herein stated, under which appellee is not entitled to subrogation, and therefore we think the bill is not sufficient in its averments as to the terms of the mortgage clause. If, upon a remandment, the bill is amended so as to meet the objection which we have discussed, appellant has argued other objections to the bill which we think we should treat also. Some of them are not specifically referred to in the demurrers, but, being discussed in brief, we will treat them for the benefit of another trial.

Appellant contends that the bill cannot be amended so as to permit subrogation, for that the right is dependent upon an agreement, which is, in effect, an assignment of a building and loan mortgage in violation of section 7101, Code. The bill does not show that the mortgagee is a building and loan association organized in Alabama subsequent to February 7, 1893, and therefore that it is subject to section 7101, Code. But, assuming that such may be shown, this court has held that its provisions do not apply to an assignment effectual as a subrogation which is worked out by a principle of law, as distinguished from one which is contractual in nature. Tennessee Valley Bank v. Sewell, 214 Ala. 362, 107 So. 834.

We have shown that the right of subrogation by an insurer as herein described is dependent upon the nature of the insurance contract with respect to the mortgage. The mortgagee is not a party to that contract, though it was made for his benefit. It has not agreed to assign the mortgage, but the right of assignment or subrogation is worked out by an equitable...