Weddington v. Piedmont Fire Ins. Co.

• Decision Date: 11 May 1906
• Citation: 54 S.E. 271,141 N.C. 234
• Parties: WEDDINGTON v. PIEDMONT FIRE INS. CO.
• Court: North Carolina Supreme Court

54 S.E. 271

141 N.C. 234

WEDDINGTON v. PIEDMONT FIRE INS. CO.

Supreme Court of North Carolina

May 11, 1906

Appeal from Superior Court, Mecklenburg County; Webb, Judge.

Action by W. J. H. Weddington against the Piedmont Fire Insurance Company. From a judgment in favor of defendant, plaintiff appeals. Affirmed.

Where a fire policy provided that if it became void, the unearned portion of the premium should be returned on surrender of the policy, the tender of the unearned portion of the premium paid was not a condition precedent to the insurer's right to insist on a forfeiture of the policy for a breach of condition against incumbrances as a defense to an action on the policy, there having been no surrender of the policy by plaintiff.

Civil action tried before Webb, J., and a jury at November term 1905, of Mecklenburg superior court. The plaintiff sued to recover the amount of an insurance policy for $500 issued by defendant to him on October 21, 1903, for one year on a stock of goods. The policy contained, among others, the following provisions material to be stated: "This policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void if the subject of insurance be personal property, and be or become encumbered by a chattel mortgage. If this policy shall become void or cease, the premium having actually been paid, the unearned portion shall be returned on surrender of this policy, or the last renewal, this company retaining the customary short rate." It was written according to the standard form prescribed by the statute. The premium of $11 was paid. On May 11, 1904, the plaintiff executed a chattel mortgage to the McClelland Paint Company for $867.16, on the said stock, which was duly registered. The defendant did not consent to the giving of the mortgage and had no notice thereof until after the stock of goods was destroyed by fire which occurred in June, 1904, nor until after the nonwaiver agreement hereinafter mentioned was executed, unless certain correspondence between the plaintiff and H. M. McAden amounted to such consent or notice. The plaintiff wrote to McAden on December 18, 1903, as follows "I hope you will not think it presumptuous of me in writing this letter and requesting a loan or an indorsement of my note for $300 for 12 months for the following purpose and conditions: I have recently gone in business on my own account, and have bought goods on my own credit, standing to the amount of $1,600, and on which I have paid something over $700, and should you favor me to the extent of this loan, I will apply that to my creditors, which will put me in the position of having goods here in my store $1,000 or more paid for, that I am willing to give you a chattel mortgage on, to guaranty the payment of this $300. I will, of course, keep my stock up to its present standing, and be monthly reducing my indebtedness. I am also carrying my goods insured for $1,000; one-half of insurance is placed with your company. I have not been dealing with banks long enough to have any financial standing with them. I now have a mortgage of $600 on my house and lot, placed there about the first of this month; $300 of it I have used in reducing my indebtedness; other amount remaining in Mechanic's Building & Loan Association until I start and complete two rooms on my house. I am willing to thoroughly satisfy your mind, as to my business condition, by showing you through my store, stock, books, invoices, and receipts." On December 21, 1903, McAden, as president, replied as follows: "I acknowledge receipt of your letter of 18th and note contents with interest. I regret to say that just at this time I am not in a position to accommodate you in the manner you desire. Regretting not being able to assist you at this time, and wishing you success in your undertaking, I remain etc." The plaintiff executed a nonwaiver agreement before the adjustment of the loss was undertaken by the defendant's agent. He proposed to prove by himself, first, that he did not know the nature of the contents of this instrument; and, second, that the agent told him that signing the paper would prevent any difficulty in settling the loss. The evidence, on objection of defendant, was excluded. The following issue was submitted: "Is the defendant indebted to the plaintiff upon this policy?" The court charged the jury that if they believed the evidence they should answer the issue "No." Plaintiff excepted. The jury answered the issue "No." Judgment was entered upon the verdict for the defendant, and the plaintiff appealed.

C. D. Bennett and Clarkson & Duls, for appellant.

Tillett & Guthrie, for appellee.

WALKER J. (after stating the case).

The validity of the provision in a policy of insurance against the creating of incumbrances without the consent of the insurer can hardly be contested at this late day. It has now become the settled doctrine of the courts that the facts in regard to title, ownership, incumbrance, and possession of the insured property are all important to be known by the insurer, as the character of the hazard is often affected by these circumstances. "When a person's interests in a property are qualified or complicated, the motive to care for and protect is weakened; and, following the principle that in a large majority of cases governs conduct, we may expect to find indifference and often neglect where interested vigilance is required to secure safety. When a person insures property where the title is in dispute, or if it be heavily incumbered, there will sometimes exist a dangerous temptation to withhold protection to such a degree as to invoke accident, and this may frequently be done without a conscious intent of wrongdoing on the part of the insured. This fact is always recognized by insurance companies; and as the success of their undertakings is not based on the exceptional, but the general, principles of business morality, their purpose is to fix relations under the contract that will create no motive on the part of the insured for the commission of crime. It will be found, therefore, that policies generally provide that when the property becomes incumbered, or any change takes place in title or possession, notice of the fact must be given to the company, and its consent had, or a forfeiture will result." Ostrander on Fire Insurance (2d Ed.) § 84; Alston v. Ins. Co., 100 Ga. 287, 27 S.E. 981; Ins. Co. v. Bernstein, 55 Neb. 260, 75 N.W. 839; Lee v. Ins. Co., 79 Iowa, 379, 44 N.W. 683; Brown v. Ins. Co., 41 Pa. 187. It is wholly a matter of agreement and, when incumbrances are prohibited by the contract, the question of materiality may be regarded as settled. The very nature of the requirement that consent to an incumbrance must first be obtained in order that the policy may remain in force indicates that it is a matter of the first importance to the insurer to be informed of any such change in the interest of the insured as it is something that must necessarily control his assent to the continuance of the insurance. It may be said to be of the very essence of this kind of contract that the company should be apprised promptly of any such diminution of interest in the property insured as will tend to lessen the care and diligence in its protection and preservation which the insured would otherwise bestow upon it. The interest of the insured is frequently diminished exactly in proportion as the incumbrance is increased, and it is this fact, which refers directly to the moral hazard of the risk, that chiefly concerns the insurer, and for this reason a frank disclosure of the condition of the property with reference to liens, incumbrances, and title is generally required as a condition to the payment of the loss. This court has expressly approved this doctrine and sustained the validity of a similar provision in policies of insurance, and for the very reason we have given.

In the recent case of Hayes v. Insurance Co., 132 N.C. 702 44 S.E. 404, it was held that the existence of an incumbrance on the property insured is a most material fact and should be communicated to the company, for if made known it would doubtless prevent a longer continuance of the risk. "While it is always the duty of the court to enforce contracts as made by the parties, their judgments will usually be tempered with mercy, and express a just partiality for the right; and hence it is frequently found that they are exceedingly reluctant to give effect to arbitrary provisions that are repugnant to the common sentiments of justice, and especially when to do so will result in forfeitures and the defeat of substantial rights." When a warranty or material representation is the subject of contention, the...