Tri-State Mutual Grain Dealers Fire Ins. Co. v. Morris, 16226.

• Citation: 268 F.2d 956
• Decision Date: 29 June 1959
• Docket Number: No. 16226.,16226.
• Parties: TRI-STATE MUTUAL GRAIN DEALERS FIRE INSURANCE COMPANY, Appellant, v. C. R. MORRIS, Constance B. Honaker, The Home Insurance Company and The Canadian Fire Insurance Company, Appellees. C. R. MORRIS and Constance B. Honaker, Cross-Appellants, v. THE HOME INSURANCE COMPANY and The Canadian Fire Insurance Company, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

268 F.2d 956 (1959)

TRI-STATE MUTUAL GRAIN DEALERS FIRE INSURANCE COMPANY, Appellant, v. C. R. MORRIS, Constance B. Honaker, The Home Insurance Company and The Canadian Fire Insurance Company, Appellees.

C. R. MORRIS and Constance B. Honaker, Cross-Appellants, v. THE HOME INSURANCE COMPANY and The Canadian Fire Insurance Company, Appellees.

No. 16226.

United States Court of Appeals Ninth Circuit.

June 29, 1959.

Hindman & Davis, E. Eugene Davis, Los Angeles, Cal., for appellant.

Yale, Wilson, Summers & Yale, San Diego, Cal., Thomas P. Menzies, Los Angeles, Cal., for appellees.

Before CHAMBERS, BARNES and HAMLEY, Circuit Judges.

CHAMBERS, Circuit Judge.

Morris and Honaker hold first and second mortgages¹ on a restaurant property at Lakeside, California. The restaurant burned on September 27, 1955, with a loss which is agreed to be $7,890.

At the time of the fire, Tri-State had outstanding on the restaurant property a policy of fire insurance in the amount of $7,000. This policy named Aubrey L. Owens and Emo T. Owens as the insured. Also outstanding at the same time on the same property was Canadian's policy dated September 20, 1955, in the amount of $6,000 and Home's policy of the same date in the amount of $6,000. In the latter two policies one Rose Gilmore was named as the insured. The mortgagees, Morris and Honaker, were named and provided for by loss payable clauses in all three policies. The total sum due both mortgage holders on the date of the fire was $8,148.07.

No one has paid the mortgagees under the fire policies, notwithstanding the fact that each of the companies had then received and had kept premiums that covered the day of September 27, 1955. And even now the companies keep the premiums for periods all covering the day in question,² although Canadian and Home cancelled their policies effective on dates in February, 1956, refunding the premiums paid on a prorata basis for the unexpired portion of terms on the policies.

Morris and Honaker, on the face of things adequately protected by insurance, find themselves caught by a controversy among the insurance companies. The circumstance out of which their controversy grows is that at the time of the fire the Owenses were selling the restaurant property to Gilmore. The transaction between the sellers and the buyer is found in written escrow instructions with an escrow agent, the Allison-McCloskey Company of San Diego. The escrow agreement was the parties' agreement. The sum of $500 was placed there by Gilmore when the escrow was opened and she was to deposit about $5,400 there before closing.

When the sale was completed, then Tri-State's policy was to be cancelled. In anticipation of this, Gilmore had purchased and paid for the Canadian and Home policies. Tri-State's position below and here is that it is willing voluntarily to stand the loss on a prorata basis with Canadian and Home. Canadian and Home deny all liability on the principal ground that at the time of the loss Gilmore (they say) had no insurable interest. Therefore, the policies were not in effect. They make other defenses too. The trial court agreed with Canadian and Home and rendered judgment for the full amount of Tri-State's policy: $7,000, in favor of the mortgagee plaintiffs. This court disagrees and holds the loss should be prorated among the three.

To us, it is clear enough under California law that this purchaser in possession, although the sale has not been closed yet, had an insurable interest. Under Section 1662 of the Civil Code of California, the risk of loss for the fire was on Gilmore — because she was in possession, even though the deed had not been delivered. Can the California law be so cruel as to hold that the risk of loss was on Gilmore but she could not insure against it? We think not and Sections 281 and 282 of the California Insurance Code would appear to support her.

The district court relied largely on the California case of Vierneisel v. Rhode Island Insurance Co., 77 Cal.App. 2d 229, 175 P.2d 63. There the suit was by the purchaser of a property who after the loss took an express assignment of the seller's claim against...