Atlantic Joint Stock Land Bank v. Foster

Seawell, J. The insurance policy, in the respects here considered, conforms to the requirements of the North Carolina act on the subject establishing a standard fire insurance policy. Michie’s Code, section 6437. Where loss or damage is made payable in whole or in part to the mortgagee, it is provided: “Upon failure of the insured to render proof of loss, such mortgagee shall, as if named as insured hereunder, but within sixty days after such failure, render proof of loss and be subject to the provisions hereof as to appraisal and time of payment.” As to the original insured, it is provided that “the insured shall within sixty days after the fire, unless such time is extended in writing by this company, render to this company a proof of loss, signed and sworn to by the insured,” etc. But the rights of the parties after the policy has been issued must be ascertained and determined in accordance with the terms and provisions of the contract and derive no extra validity by reason of the fact that the form is prescribed by law. Lancaster v. Ins. Co., 153 N. C., 285, 69 S. E., 214; Midkiff v. Ins. Co., 197 N. C., 139, 141, 147 S. E., 812. The assignment of an insurance policy is governed by rules pertaining to other assignments as to requisites, validity, operation, and effect. Hobbs v. Memphis Ins. Co., 1 Smeed (Tenn.), 444; Ward v. Rutland, etc., Mutual Fire Insurance Co., 31 Vt., 552. The theory that insurance is a personal contract and, therefore, limits the assignability, has no bearing here, since the insurance company consented to its transfer and recognized it by the attachment of the standard New York mortgage clause which, indeed, is in some aspects a contract between the insurance company and the mortgagee. No inference can be drawn from that theory that the proof of loss should preferentially be made by the owner, since the question of personnel is one which applies to the risk involved in issuing the policy. The effect of an assignment upon the insurance contract is, therefore, controlled by the terms and the circumstances of the contract of assignment itself; Cleveland v. Clapp, 5 Mass., 201; Ainsworth v. Backus, 5 Hun. (N. Y.), 414; and we think this holds true where the mortgage contract requires the policy to be taken out for the *420 benefit of the mortgagee and delivered up to him, although some question might be raised as to whether this would constitute a technical assignment. The mortgage contract between the plaintiff and the defendants Eoster required the latter to take out insurance upon the mortgaged property, the loss, if any, payable to the mortgagee, as its interest might appear, and further required that the insurance policy so obtained should be delivered into the possession of the plaintiff, which was done. Whether the defendants kept up the premiums on the policy, as they had agreed, or did not, does not appear in the record. It does appear, however, that some time in 1935 the mortgagee independently took out other insurance, although the dwelling had been destroyed by fire in 1931. This remarkable fact, bearing alike on the Land Bank and the insurance company which issued the policy on nonexistent property, seems to indicate an unjustifiable want of business prudence on the part of both parties to the transaction and the lack of easily obtainable knowledge of the conditions existing with respect to the property. The mortgagee meanwhile delivered up the policy of insurance taken out by Foster upon the mere request of the insurance company and a statement from them that it had been canceled, and without any investigation whatever. In some respects the duty of the land bank toward the mortgagor with respect to the collection of the insurance on the loss which occurred by the burning of the property 12 April, 1931, is a matter of first impression with us. The precise point involved in this case does not appear to have been decided here. That the mortgagee had the right to sue in the premises — especially since it had been accepted as payee by the insurance company — cannot be questioned. Peterson v. Mechanics T. Ins. Co., 168 La., 850, 123 So., 596. And upon the evidence in this case it is clear that the amount of insurance was not sufficient to pay off the mortgaged debt, and the mortgagor, therefore, had no equity in the proceeds. It might well follow, since our statute requires suits to be brought by the party at interest — C. S., 446 — that the plaintiff mortgagee alone could bring such a suit. 26 C. J., p. 484, and cases cited. If any other sort of security had been lost by the negligence or misconduct of the plaintiff, it would have been liable therefor. The question here is whether or not the plaintiff, with the policy of insurance in its possession, with the right to sue, and virtually the owner of the proceeds to be recovered, did not owe the duty to the mortgagor to proceed to its collection and application. We think the contract between the mortgagor and the mortgagee, considered as it affected their obligations and duties to each other, was a virtual assignment of the insurance contract. This, accompanied by delivery of the policy, in a measure substituted the' mortgagee for the *421 mortgagor, certainly as beneficiary under tbe immediate contract, since it and it alone was entitled to receive tbe payment from tbe insurance company. It is not unreasonable to assume tbat it was tbe duty of tbe Land Bank to carry out tbat part of tbe contract wbicb related to tbis interest, tbat is, tbe collection of tbe proceeds and tbe performance of those things wbicb were necessary and incidental thereto. A reservation was made in tbe mortgage contract as to tbe duties to be performed with reference to tbe insurance contract by tbe mortgagor, tbe defendant Foster; tbat is to say, tbat be should pay tbe insurance premiums. We consider it tbe better reasoning, and so bold, tbat it was tbe duty of tbe Land Bank to exercise due diligence in collecting tbe insurance, and tbat tbis involves due diligence also in giving notice and making proof of claim, a duty which did not devolve entirely on tbe defendant mortgagor from tbe simple fact tbat tbe responsible officers of tbe Land Bank bad never beard of tbe fire. It is quite possible, under tbe facts as we have above outlined them, tbat tbe defendant Foster also was in ignorance of tbe fire. Tbe question is one of due diligence. We consider tbe possession of tbe policy itself by tbe plaintiff as a strong circumstance in placing upon it tbe duty of proceeding with tbe collection. Tbis was considered controlling in Whiting v. Lane, 193 Appellate Division, 964, 184 N. Y. S., 793; Annotations, A. L. R., 1289. See, also, Charter Oak Life Ins. Co. v. Smith, 43 Wis., 329, as to duty to collect. There is tbe further circumstance, with wbicb we do not think tbe court was competent to deal as a matter of law, tbat tbe plaintiff surrendered tbe policy of insurance for cancellation after (as tbe evidence tended to show) a liability for loss by fire bad accrued upon it. Tbe fire bad happened some years before, it is true, and no proof of loss or demand bad been made — a circumstance we have considered — but it was not for tbe plaintiff to determine what defense tbe insurance company might make against tbe claim, if any at all. Certainly tbe failure to file proof and make demand on tbe part of either tbe mortgagor or mortgagee would not, under all circumstances, defeat tbe claim, although it might determine tbe time within wbicb suit might be brought; Gerringer v. Ins. Co., 133 N. C., 407, 45 S. E., 773; and there are many circumstances wbicb might excuse delay in filing proof of claim, and one of them, it has been held, is absence. 26 C. J., page 375; Carpenter v. German American Ins. Co., 135 N. Y., 298, 31 N. E., 1015; Oakland Home Ins. Co. v. Davis (Texas Civil Appeals), 33 S. W., 587. Indeed, where tbe New York standard mortgage clause is incorporated into tbe contract, containing tbe provision tbat no failure or misconduct on tbe part of tbe mortgagor shall defeat tbe rights of tbe mortgagee— and tbat clause is in tbis policy — it is generally held tbat tbe mortgagee *422 may bring suit without filing proof of claim at all. At least under this contract of insurance there was nothing which the mortgagor could do to defeat the collection of this security on the part of the mortgagee, and little he'could do to advance it. (As noted, the standard policy necessary under the North Carolina Insurance. Laws requires the affected mortgagee to make proof of claim within sixty days after a failure on the part of the original insured to do so.) ¥e are not considering any question of estoppel on the part of the intestate Foster, if there should be any estoppel involved in his conduct. That, at least, cannot be inferred as a matter of law from the evidence. ¥e think, and so hold, that the question of reasonable diligence in the collection of the item should have been left to the jury upon the issues submitted by the defendant, or other appropriate issues, with proper instruction by the court, and the failure to do so was error. Under the circumstances of this case it was error also to instruct the jury that if they should believe the facts to be as testified by the witnesses, and as the admissions and documentary evidence tended to show, that they should find the second issue for the plaintiff. Plaintiff had no right to charge defendant’s intestate with premiums upon insurance voluntarily taken out upon nonexistent property, and no right to charge for insurance taken out upon any property without proof, which this evidence does not disclose, that said intestate had failed to pay premiums as required by the mortgage. It is not necessary to review the judgment as to the order in which the property is required to be sold, since the defendant is entitled to have the amount due ascertained before such foreclosure takes place. For the errors pointed out, there must be a New trial.