Union Trust Co. of Ellsworth v. Philadelphia Fire & Marine Ins. Co.

• Decision Date: 07 March 1929
• Citation: 145 A. 243
• Parties: UNION TRUST CO. OF ELLSWORTH v. PHILADELPHIA FIRE & MARINE INS. CO. SAME v. NATIONAL FIRE INS. CO. OF HARTFORD. SAME v. NATIONAL LIBERTY INS. CO. OF AMERICA.
• Court: Maine Supreme Court

145 A. 243

UNION TRUST CO. OF ELLSWORTH

v. PHILADELPHIA FIRE & MARINE INS. CO.

SAME

v. NATIONAL FIRE INS. CO. OF HARTFORD.

SAME

v. NATIONAL LIBERTY INS. CO. OF AMERICA.

Supreme Judicial Court of Maine.

March 7, 1929.

Report from Supreme Judicial Court, Hancock County, at Law.

Separate actions by the Union Trust Company of Ellsworth against the Philadelphia Fire & Marine Insurance Company, the National Fire Insurance Company of Hartford, and the National Liberty Insurance Company of America. On report from trial court on pleadings and evidence. Judgment for defendant in each suit.

Argued before WILSON, C. J., and STURGIS, BARNES, and BASSETT, JJ., and PHILBROOK, A. R. J.

Hale & Hamlin, of Ellsworth, and Geo E. Thompson, of Bangor, for plaintiff.

Wm. H. Gulliver and Theodore Gonya, both of Portland, and Wm. E. Whiting, of Ellsworth, for defendants.

WILSON, C. J. These actions, brought under section 38 of chapter 87 (Rev. St.) by the same plaintiff on policies of fire insurance respectively issued by each of the defendants, were tried together, and, if we construe the stipulations of the parties correctly, involve the same issues and may be disposed of by the same mandate in each case, except as to the measure of damages, if the finding should be for the plaintiff.

The testimony was taken out below, and the cases reported to this court for determination upon the writ and pleadings in the case against the National Fire Insurance Company of Hartford, and so much of the evidence as is legally admissible. Much of the evidence taken out on both sides may not have been strictly admissible, but enough admissible testimony is included in the record to warrant the finding of the following facts:

In August, 1920, one Curtis Durgain of Bangor owned a farm in the town of Sedgwick in Hancock county, and conveyed it by a mortgage deed to the plaintiff to secure a loan of $2,000. Some time after the giving of the mortgage, there was at least one or more policies of fire insurance on the buildings, one of which policies appears to have been issued by the National Fire Insurance Company of Hartford, one of the defendants in these actions, and which was deposited with the plaintiff bank as mortgagee.

At the time when the mortgage was given, the premises were occupied by one Wessel, son-in-law of Durgain, during the entire year, and also by Durgain during a portion of the year. In the fall of 1924, the son-in-law's family having been broken up, the son-in-law went away to work, leaving no one in the house. He came back at times to attend to certain of the farm work, but did not occupy the house during the winter and spring of 1924-25.

On April 14, 1925, Durgain went to an insurance agency in Bangor, representing the Philadelphia Fire & Marine Insurance Company and the National Fire Insurance Company of Hartford, Conn., and took out two policies of insurance for $1,900 each on the premises in Sedgwick, the policies being in the standard form required by the statutes of this state, and were each made payable to the plaintiff as mortgagee as its interest should appear. It is on these policies that two of the actions are based.

At the time of making application for these policies, Durgain undoubtedly represented to the agent that the premises were occupied by his son-in-law. Some time in April, 1925, a representative of the National Fire Insurance Company of Hartford from its home office wrote its agent in Ellsworth that it was being bound by a policy on farm buildings in Sedgwick, and inquired if it was the same farm as the one bound by a policy previously issued from the Ellsworth agency.

Upon investigation, the agent learned that the buildings were unoccupied, and for the first time that it was mortgaged, as the policy then in force was not made payable to the mortgagee, though it had been delivered to the mortgagee by Durgain.

The Ellsworth agent thereupon sent a notice to Durgain of cancellation of the policy issued through his agency. Durgain then proceeded to obtain an additional policy to the amount of $2,500 in the National Liberty Insurance Company of America through another agency in Bangor. In applying for this policy, he represented to the agent that the buildings were then occupied by his son-in-law. This policy bears date of May 4, 1925, and is the basis of the third action.

Some days later, this last policy was delivered to the treasurer of the plaintiff bank by Mr. Durgain, who at the same time explained that he had received a notice that the policy then held by the bank issued from the Ellsworth agency would be canceled on May 12, 1925, and requested that it be delivered up for cancellation, which was done.

On May 16th, the buildings were totally destroyed by fire. At this time they were unoccupied according to the definition of that term in Hanscom v. Insurance Co., 90 Me. 333, 338, 38 A. 324, and had been so unoccupied for a period of more than six months, and therefore were vacant when Durgain made application for each of the policies involved in these actions; and the treasurer, who was also a director of the company and who represented the bank in its dealings with Durgain, knew that Durgain's son-in-law had not been regularly occupying the premises since the previous fall.

The plaintiff bank on the 16th day of May at the time of the fire had in its possession only the policy issued by the defendant, the National Liberty Insurance Company of America, but after the fire Durgain delivered to it the policies issued on April 14, 1925, by the other two defendants.

In 1924, on May 21st, Durgain being some time in arrears on the mortgage indebtedness, the plaintiff bank began foreclosure proceedings under which Durgain's equity of redemption in the premises expired May 21 1925, or five clays after the fire. No effort, however, was made by either defendant prior to the expiration of the equity of redemption to pay the mortgage indebtedness and take an assignment of the mortgage and note under the provisions of its policy. In fact the defendants from the first notice of the loss have taken the position that they were not liable either to Durgain or the plaintiff upon these policies because of the misrepresentations of Durgain that the premises were occupied as farm buildings, and were in fact unoccupied at the time of the issuing of the policies, and at the time of the loss; and, though the plaintiff, following the termination of the period of redemption, offered to convey the property to the defendants if paid the indebtedness, each refused to accept the offer, and these actions were brought.

The defendants raise three main issues under a brief statement under the general issue: First, that by reason of Durgain's misrepresentation as to occupancy in applying for the policies no valid contract of insurance ever existed and therefore the plaintiff acquired no rights under them, and further that the "union mortgage clause," so called, in the standard policy (section 5, R. S. c. 53), that "no act or default of any person other than such mortgagee or his agents, or those claiming under him, shall affect such mortgagee's right to recover in case of loss," applies only to acts subsequent to the issuance of the policy, and that a mortgagor in such cases in obtaining the insurance is the agent of the mortgagee, who is bound by his representations; second, that the bank and mortgagee in this instance had knowledge of the facts of unoccupancy or of such facts that should have put it upon its inquiry and amounted to knowledge; third, that by its foreclosure the plaintiff put itself in a position so that it could not comply with the terms of the policy requiring it to assign the mortgage deed and note and therefore cannot recover.

It is necessary to consider only the first two points. Prior to the enactment in this state in 1895 of the provisions for a standard policy of fire insurance, the authorities are all agreed that the protection of the mortgagee under a policy obtained by the mortgagor, though made payable to the mortgagee, might be destroyed by some act or neglect of the mortgagor without the knowledge of the mortgagee. The insurance in such cases was held to be upon the interest of the mortgagor alone and not upon that of the mortgagee, and a "payable in case of loss" clause inserted in or attached to the policy was held to be merely a contingent order assented to by the insurance company, and only gave the mortgagee the same right to recover that the mortgagor had. The mortgagor's rights being forfeited, the mortgagee was without protection. Brunswick Sav. Inst. v. Commercial Ins. Co., 68 Me. 313, 28 Am. Rep. 56; Biddeford Sav. Bank v. Dwelling-House Insurance Co., 81 Me. 570, 18 A. 298.

The authorities are now almost unanimously in accord that, by the insertion of the provision now contained in the standard policy and commonly referred to as the "union mortgage clause," a new relation is entered into between the insurer and the mortgagee, viz. that of insurer and insured, and independent of the contract with the mortgagor, and insuring the interest of the mortgagee. Hastings v. Westchester Ins. Co. et al., 73 N. Y. 141; Eddy v. L. A. Corporation, 143 N. Y. 311, 38 N. E. 307, 25 L. R. A. 686; Smith v. Union Ins. Co., 25 R. I. 260, 55 A. 715, 105 Am. St. Rep. 882; Genesee Falls Sav. & Loan Ass'n v. U. S. Fire Ins. Co., 16 App. Div. 587, 44 N. Y. S. 979; Germania Fire Ins. Co. v. Bally, 19 Ariz. 580, 585, 173 P. 1052, 1 A. L. R. 488; Reed v. Firemen's Ins. Co., 81 N. J. Law, 523, 526, 80 A. 462, 35 L. R. A. (N. S.) 343; Magoun v. Firemen's Fund Ins. Co., 86 Minn. 486, 490, 91 N. W. 5, 91 Am. St. Rep. 370; Hartford Ins. Co. v. Olcott, 97 Ill. 439; People's Savings Bank v. Retail Merchants Mut. Fire Ass'n of Iowa, 146 Iowa, 536, 540, 123 N. W. 198, 31 L. R. A. (N. S.) 455; Syndicate Ins. Co. v. Bohn (C. C. A.) 65 F. 165, 27 L. R. A. 614; Gilman v. Ins. Co., 112 Me. 528, 535, 92 A. 721, L. R. A. 1915...