Heilbrunn v. German Alliance Insurance

Scott, J.: The plaintiff appeals from an order denying his motion for judgment upon the pleadings, which consist of a complaint, answer and demurrer thereto. Plaintiff sues as assignee of one Henry Gerken, the insured, under a mortgagee clause attached to a policy of insurance issued to one Cecelia M. Siff. The sufficiency of the complaint has already been established. (140 App. Div. 557; 202 N. Y. 610.) By the separate defense now demurred to it is alleged that as to the owner the policy of insurance became null and void, and that prior to the commencement of this action, and before the assignment to plaintiff, Henry Gerken, as mortgagee, ceased to have any interest in the premises insured, for the reason that the mortgage debt had been fully paid, satisfied and discharged. It is' not alleged that the mortgage debt was paid before the loss occurred, and it is, therefore, to be assumed that it did not occur until afterwards. The question then is whether a mortgagee may recover the amount secured by the mortgagee clause attached to a policy of insurance when the mortgage debt was still due and owing when the loss occurred, but has been fully paid and satisfied before suit is brought against the insurer. It is settled that the contract between the insurer and the mortgagee, as expressed by the mortgagee clause, is quite separate and distinct from the contract between the insurer and the owner. The question is not, therefore, complicated by the circumstances that as between the insurer and the owner the policy had been avoided. The mortgagee clause contained the usual subrogation provision, the legality and binding force of which has long been recognized in this State. (Ulster County Savings Inst. v. Leake, 73 N. Y. 161.) It reads as follows: Whenever this company shall pay the mortgagee (or trustee) any sum for loss or damage under this policy, and shall claim that, as to the mortgagor or owner, no liability therefor ' existed, this company shall to the extent of such payment be thereupon legally subrogated to, all the rights of the party to [672] whom such payment shall be made, under all securities held as collateral to the mortgage debt, or may at its' option pay to the mortgagee (or trustee) the whole principal due or to grow due on the mortgage, with interest, and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities,-but no subrogation shall impair the right of the mortgagee (or trustee) to recover the full amount of____ claim.” The contract of insurance with the mortgagee was nothing more than a contract of indemnity, and the liability of the insurer was measured not by the amount of the policy, but by the amount of loss incurred by the insured. Undoubtedly, upon the happening of the fire there arose an apparent liability on the part of the insurer to pay to the insured so much of his loss as was covered by the policy, but coupled with this liability was the absolute right on the part of the insurer to be subrogated pro tanto to the securities held by the mortgagee as collateral to the mortgage debt, or in other words to the mortgage. After the fire, by payment or foreclosure, the mortgagee has been paid his debt, and consequently the collateral has' become discharged and there is nothing to which the insurer’s right of subrogation can attach, except to the money paid to the insured in,satisfaction of his debt. In other words, when the action was commenced the insured had suffered no loss for which he was entitled to claim indemnity, because he had realized the whole amount of his debt from the security which he had agreed to deliver to the insurer if the latter paid the loss. Having thus collected his debt out of the security he had put it out of his power to fulfill his subrogation agreement. I do not consider that it was necessary for the defendant to admit its liability and then counterclaim for a like amount realized by the insured out of the collateral security. The question in an action of this character is how much is due to plaintiff when the action is begun. If the' defendant is, as in the present case, merely an indemnitor, and the plaintiff has, before suit brought, been paid from other sources all or a part of the amount for which the indemnitor had undertaken to be liable, it is perfectly competent to show that fact hy way of defense and thus reduce the amount recoverable. ■ " [673] In my opinion the order appealed from was right and should be affirmed, with ten dollars costs and disbursements. Clarke and Dowling, JJ., concurred; Ingraham, P. J., and McLaughlin, J., dissented.