Lipedes v. Liverpool & London & Globe Insurance

Pound, J. This is an action on a policy of fire insurance covering personal property. The defense is that the policy is void because the property was incumbered with a chattel mortgage. The plaintiff asserts that the chattel mortgage was void by reason of usury and a nullity in *203 law. The question is whether the contract of the parties contemplated the disclosure to the insurance company of the existence of the usurious chattel mortgage. The stipulation in the policy in suit provided: “ This entire policy, unless otherwise provided by agreement endorsed hereon or added hereto, shall be void * * * if the subject of insurance be personal property and be or become incumbered by a chattel mortgage.” This language is not unlike the stipulation in Bigler v. N. Y. Central Insurance Company (22 N. Y. 402), where the agreement was that in case plaintiffs should effect any other insurance upon the property covered by the defendants’ policy, then the defendants’ policy was to cease and be of no further effect, unless the plaintiffs should give notice to the secretary of the defendants of such further insurance, and have the same indorsed on the policy, or have the same otherwise acknowledged in writing by the corporation. Plaintiffs effected other insurance and gave no notice thereof. They sought to excuse themselves for this breach of their agreement by alleging that the policy obtained by them from the second company was void by reason of the stipulation and agreement contained in that policy, “ that in case the assured shall have already any other insurance against loss by fire on the property hereby insured, not notified to this company and mentioned in, or endorsed upon, this policy, then this insurance (i. e„, the second policy) shall be void and of no effect.” They urged that the second insurance was thus by its terms void and no insurance and, therefore, they had not violated the agreement contained in the first policy. This court held that: “ The policy issued by the defendants ceased, and was of no further effect, upon the plaintiffs taking out a policy on the same property from the Globe Company (the second policy) without notice thereof to the defendants; and that such result follows whether the latter policy was void or voidable merely. It was another insurance on the same property, *204 which the plaintiffs agreed, if they made it, should be notified to the defendants; and the penalty of the omission of such notice was, that the defendants’ policy should cease and be of no further effect.” (p. 409.) Story, J., in the similar case of Carpenter v. Providence Washington Insurance Co. (16 Pet. 495, 511) said: “ The stipulations in the- policy as to notice of any prior and subsequent policies, were designed to apply to all cases of policies then existing in point of fact, without any inguiry into their original validity and effect, or whether they might be void or voidable.” This is the New York rule on the subject of insurance by its terms void if the insured had other insurance. The rule differed in other jurisdictions. (Turner v. Meridan Fire Ins. Co., 16 Fed. Rep. 454, and cases cited.) The present standard form of fire insurance policy has a clause against other insurance which adds the words “ whether valid or not ” to the original clause in order to remove all doubts as to the meaning of the policy, but New York had already refused to sustain the contention that an invalid policy might be ignored. We may assume that the chattel mortgage is void as matter of law. (Sabine v. Paine, 223 N. Y. 401.) It may, if enforcement is resisted, lack legal efficacy, but it exists as a fact and has moral efficacy in point of fact. The reason for requiring knowledge or notice of the chattel mortgage is the same as the reason for requiring knowledge of other insurance. The facts relating to both are important to the insurance companies as bearing on the risk assumed. Property- incumbered by a chattel mortgage may cease to be a good moral risk. That the necessities or the ignorance of the insured have forced him into the hands of the usurer does not make the information sought a matter of indifference to the insurer, but rather the contrary. The fair meaning of the stipulations of the parties called for full disclosure by the insured. *205 In Forward v. Continental Insurance Co. (142 N. Y. 382, 390) it is held that a mere paper transfer of title, not intended to transfer ownership, did not avoid a policy of insurance, void “ if the interest of the insured be other than unconditional, sole ownership,” six judges agreeing that “ the moral hazard which was the basis of the condition of the policy would still be absent.” But the moral hazard is the test by which the terms of the policy are to be construed. To paraphrase the language of Andrews, J., in Landers v. Watertown Fire Insurance Co. (86 N. Y. 414, 417), the condition in defendant’s policy was inserted to protect it from the hazard of insuring mortgaged property and the existence of the chattel mortgage was a breach of the condition. The” judgment appealed from should be affirmed, with costs.