Bennett v. Provident Fire Insurance

Stacy, O. J. The appeal presents, for the first time in this jurisdiction, the question as to whether the subsequent act of an owner or mortgagor in taking out additional insurance, without the knowledge or consent of the mortgagee, to protect alone his interest in mortgaged property, ipso facto reduces proportionately the amount of prior insurance held by a mortgagee or trustee on the same property under a New York Standard Mortgage Clause. At least six courts have passed upon the question, two deciding it in the affirmative (Hartford Fire Insurance Co. v. Williams, 63 Fed., 925, Sun Ins. Co. v. Varable, 103 Ky., 758), and four in the negative (Eddy *176 v. London Assurance Corp., 143 N. Y., 311, Hardy v. Lancashire Ins. Co., 166 Mass., 210, Germania Fire Ins. Co. v. Bailey, 19 Ariz., 580, Martin v. Sun Ins. of London, 83 Fla., 325). Tbe question was adverted to, but not decided, in Bank v. Ins. Co., 187 N. C., 97, 121 S. E., 37, where it was held that the standard or union mortgage clause, engrafted upon a policy of insurance, operates as a distinct and independent contract of insurance for the separate benefit of the mortgagee, as his interest may appear, to the extent, at least, of not being invalidated, pro tanto or otherwise, by any act or omission on the part of the owner or mortgagor, unknown to the mortgagee. It is provided by each of the standard mortgage clauses in question that the Piedmont Eire Insurance Company shall not be liable under its policies for a greater proportion of any loss or damage sustained thereunder than the amount of such insurance bears to the whole amount of insurance on said property, issued to or held by any party or parties having an insurable interest therein, whether as owner, mortgagee or otherwise. It is also provided in said standard mortgage clauses that the insurance, -a.s to the interest of the mortgagee (or trustee) only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the property. Why these two apparently conflicting provisions should have been inserted in the same contract is not easy to perceive, but in keeping with the general rule of construction, with respect to ambiguously worded policies of insurance, where they are reasonably susceptible of two interpretations, we think the one more favorable to the assured should be adopted. Underwood v. Ins. Co., 185 N. C., 538, 117 S. E., 790. The clause in question received consideration by the New York Court of Appeals in the case of Eddy v. London Assurance Corp., supra, where Peckham, J., delivering the opinion, said: “It is clear that the only object of the mortgagee is to obtain a security upon which he can rely, and this object is, of course, .also plain and clear to the insurer. Both parties proceed to enter into a contract with that one end in view. In order to make it plain beyond question the statement is made that no act or neglect of the owner with regard to the property shall invalidate the insurance of the mortgagee. When, in the face of such an agreement, entered into for the purpose stated, there is also placed in the instrument a provision as to the proportionate payment of a loss, we think the true meaning to be extracted from the whole instrument is that the insurance which shall diminish or impair the right of the mortgagee to recover for his loss is one which shall have been issued upon his interest in the property, or when he shall have consented to the *177 other insurance upon the owner’s interest. This may not, perhaps, give full effect to the strict language of the apportionment clause, but if full effect be given to that clause, and it should be held to call for the consequent reduction of the liability of the insurers in such a case as this, then full effect is denied to the important and material, if not the controlling, clause in the contract, which provides that the insurance of the mortgagee shall not be injuriously ‘impaired or affected’ by the act or neglect of the owner. As used in these mortgagee clauses, this is the meaning of the word ‘invalidate.’ (Hastings v. Ins. Co., 73 N. Y., at page 149). “We must strive to give effect to all the provisions of the contract and to enforce the actual meaning of the parties to it as evidenced by all the language used within the four corners of the instrument. We are also at liberty to consider the purpose for which the contract was executed, where-that purpose plainly and necessarily appears from a perusal of the whole paper. That construction will be adopted, in the ease of somewhat inconsistent provisions, which, while giving some effect to all of them, will at the same time plainly tend to carry out the clear purpose of the agreement; that purpose which it is obvious all the parties thereto were cognizant of and intended by the .agreement to further and to consummate.” Perceiving that the judgment below accords, in principle, with our own decisions and with the majority of eases elsewhere, we are inclined to approve it. With this disposition of the appeal, the remaining questions, sought to be presented, become academic. No error.