McNierney v. Agricultural Insurance

Vann, J.: It does not appear that the defendant had any knowledge of the mortgage except from the statement made by the plaintiff to its .agent prior to the issuing .of the policy, that he intended to place such a mortgage upon the property in about three months, when the premises were to be conveyed to him. The authority of the agent was such as to impute to the defendant any knowledge that he acquired in the transaction of its business. (Whited v. Germania Fire Ins. Co., 76 N. V., 415; Sprague v. Holland Purchase Ins. Co., 69 id., 129, 132.) The question presented for decision, therefore, when stated as favorably as possible for the plaintiff, is this: Where during the progress of negotiations for a policy of fire insurance it is verbally agreed by the insurer that the insured may mortgage the premises when they are conveyed to him, as provided in a land contract qpder which he holds the property, but no mention is made of such agreement in the policy when issued, is the giving of such mortgage a violation of a warranty that the property should not become “ encumbered by mortgage, judgment or otherwise ? ” A policy of insurance, like other written contracts, is presumed to ■embrace the entire agreement between the parties. After it has been delivered and accepted, parol evidence is not admissible to control or vary its terms. (Mayor, etc., v. Brooklyn Fire Ins. Co., 3 Abbott’s Ct. App. Dec., 251; Pindar v. Resolute Ins. Co., 47 N. Y., 114, 117; Ripley v. Ætna Ins. Co., 30 id., 136; Alston v. Mechanics Mut. [243] Ins. Co., 4 Hill, 329; Jennings v. Chenango County Mut. Ins. Co., 2 Denio, 75.) If the policy, as issued, does not embrace the entire agreement, it may be reformed by an action in equity brought for that purpose. (Cone v. Niagara Ins. Co., 60 N. Y., 619; Mahar v. Hibernia Ins. Co., 67 id., 283.) Until it is reformed it can only be enforced as it was written. The object of .this action was not to reform but to enforce the policy without changing its terms. Therefore, the parol agreement of the defendant, made before the policy was issued, cannot, in this action, be regarded as a part of the policy, or in any way effective as a contract. "Whatever force it has must be by way of notice to the insurer of a fact that had not happened, but was expected to happen. It is now well settled that knowledge of an existing fact that would avoid the policy- from its date, will estop an insurer from insisting upon such fact as a breach of a warranty. (Van Schoick v. Niagara Ins. Co., 68 N. Y., 434; Woodruff v. Imperial Ins. Co., 83 id., 135; Short v. Home Ins. Co., 90 id., 16.) This, however, is to prevent fraud, for to hold otherwise would allow an insurance company to receive pay for a valid policy, when it knew that it was invalid from the beginning. (Id.) It is so held, not simply because the policyholder paid his money without being insured, but because the company took his money knowing that he was not insured. It is an existing fact that renders the policy void, and it is knowledge of that existing fact that constitutes the fraud. As said by the Supreme Court of Indiana in Havens v. Home Insurance Company (111 Ind., 90; S. C., 12 Northeastern Rep., 137), this does not deny to insurance companies the right to impose conditions upon which they will assume risks. It does nothing more than to prevent them from taking advantage of conditions when they have full knowledge of incidents and facts connected with the risk, which are inconsistent with the conditions imposed. While notice of the existing fact may be shown by oral evidence, it is not received to contradict the written agreement, but to show that one of its provisions cannot lawfully be used against the insured. The principle upon which these cases rest has no application to the case under consideration. The policy in question was valid when it was issued, and it remained valid until the plaintiff placed the mortgage upon his property, without obtaining the consent of the defendant. [244] It was his own act and omission, not the act or omission of the defendant, that rendered it invalid. The company did not know that the mortgage had been given until after the fire had occurred. It is not a case of an executed and existing mortgage, with notice thereof at the time the insurance was effected. Under these circumstances is there any fraud to estop the defendant from invoking the warranty against incumbrances as a defense ? None, clearly, unless a parol waiver in advance of an essential part of the policy constitutes fraud. It cannot be held to constitute fraud in an insurance contract, unless it would be so held in any contract. But it would promote rather than prevent fraud to hold that any part of a written contract could be so easily sworn out of it. It would be like stopping up a crack and opening a door. It would allow any condition to be taken out of any written agreement by simply showing that it was verbally waived before the contract was signed. It might take a covenant of warranty out of a deed, an insurance clause out of a mortgage, or an agreement not to assign or under-let out of a lease. Wliat written agreement would be safe ? How could the honest and prudent protect themselves against forgetfulness, carelessness or perjury ? What restriction, inserted for the benefit of the insurer, could be relied upon ? Of what advantage to the underwriter would the written agreement be ? If a risk insured as non-hazardous is converted into a powder mill, can the owner insist that the contract is valid because the agent, possessing general powers, verbally agreed, before the policy was issued, that he might make the change ? IIow can insurance companies protect themselves if the most carefully written condition is subject to an imperfect memory or an elastic conscience ? Could not the most exacting policy be thus 'turned into a contact of indemnity against any kind of a fire, under all possible circumstances ? The few reported cases bearing directly upon the controlling question on this appeal, sustain the position that such a parol waiver will not relieve a policy from the effect of a broken condition. In Forbes v. Agawam Insurance Company (9 Cush., 470, 473) it was held in substance that if underwriters insure property with notice of existing insurance thereon, already made and capable of proof, such dduble insurance exists by their act, and, of course, with their consent, notwithstanding any restrictive clause in the policy to [245] the contrary, but that notice in advance that the assured wished to make further insurance cannot have that effect. In Havens v. Home Insurance Company (supra) it was verbally agreed that the insured might procure other insurance on the property, but this was not inserted in the policy. It was held that whether such agreement was made before or after the policy was issued, it was not a waiver of a warranty against other insurance without the consent of the company. In Western Assurance Company v. Rector (3 South-western Rep., 415) it was held by the Court'of Appeals of Kentucky that where a policy of insurance, issued upon a general stock in a country store, prohibited the keeping of gunpowder, the fact that the agent of the company knew when the application for insurance was made that the insured intended to keep gunpowder, and represented that the provision in the policy did not prevent him from keeping it, could not prevail against the express prohibition. In Frosts Detroit, etc., Works v. Millers and Manufacturers' Mutual Insurance Company (34 North-western Rep., 35) it was held by the Supreme Court of Minnesota that proof of notice to the agent of the company, at the time the insurance was effected, that the insured intended to enlarge the building covered by the policy, was incompetent to vary a provision in the contract that said building should not be altered, added to or enlarged without consent. In Mayor, etc., of New York v. Brooklyn Fire Insurance Company (3 Abb. Ct. App. Dec., 251) the underwriter offered to show that the insured at the time of the application for insurance, made certain representations as to the possession and use of the building, which were not embodied in the policy, but it was held that the proof proposed was inadmissible, as it would violate the rule excluding parol evidence to vary a written contract. It is claimed that the assignment of the policy on the sixth of January, with the consent of the defendant, was a new contract between the parties to this action, and that as the company had notice of plaintiff’s intention to mortgage the property on the first of January, it was bound to know that the mortgage was in existence ; or, in the language of counsel, that “ it had equitable and potential notice of the mortgage.” The defendant had no actual notice at the date of the assignment that the mortgage had been [246] given. To hold that it was bound to know of its existence on account of the conversation in September, before the policy was issued to Mrs. Olds, as to the plaintiff’s intention to give a mortgage, would be giving an indirect but complete effect to the parol agreement. "Why was it bound to know it ? Simply because it had orally agreed to it in advance. No other reason is ' suggested. Notice of an intended act at a specified date in the future does not ripen into knowledge of an existing fact, even when the period specified has passed. The mortgage was not given pursuant to the laud contract that was in existence when the policy was issued, for the plaintiff testified that he told the agent, at the time of the parol agreement, that he did not know of whom he should get the money. It was not given to Mrs. Olds, but to Mr. Corey, whose name was not mentioned to the agent. Hence the giving of the mortgage was not an event that would necessarily or even naturally happen, but a mere expectation, that did not put the defendant upon its inquiry. Upon both principle and authority we think that in this action, with the pleadings as they now are, the parol agreement established upon the trial can have no effect either as a part of the policy or as notice to the defendant. It follows that the judgment and order appealed from should be reversed, and a new trial ordered, with costs to abide the event. Fojllett, F. J., and Martin, J., concurred. Judgment and order reversed, and a new trial granted upon the exceptions, with costs to abide the event.