Kilgallon v. Niagara Fire Insurance

Opinion by Head, J., The action was assumpsit on a policy of insurance issued by the appellant to Daniel Kilgallon, the legal plaintiff in the suit. It insured the said plaintiff in the sum of $1,000 against loss or damage by fire to the property in the policy described, theretofore used as a dwelling house. During the life of the policy there was duly attached to it, what is commonly called a “mortgagee clause” or “a standard mortgage© clause,” to pro* — 112 — tect the interest of Joseph M. Stark, who had lent a considerable sum of money to Kilgallon, and held a mortgage covering, inter alia, the property insured. The mortgagee thus became the use-plaintiff in the pending action. The property was entirely destroyed by fire during the life of the policy and suit was brought to recover • the amount of the loss. Defense was made by the company on the ground, among others, that the property was practically worthless; had been abandoned and suffered to fall into dilapidation and decay. On this subject the testimony was conflicting. The estimates of the value of the property by those who testified ranged from $100 to $2,500. Manifestly there was raised a question of fact which required submission to the jury. We think the learned trial judge discharged his duty in this respect in a manner that cannot justly be complained of and the verdict of the jury, fixing the amount of the loss, removed that question from further controversy in an appellate court. We may note here our concurrence in the view taken by the trial judge, that each of the parties plaintiff had a substantive interest in the controversy — as a consequence neither could be concluded by testimony given by the other. Defense also was vigorously urged on the ground that the property was vacant, unoccupied at the time of the fire, and had been permitted by the owner to remain in that condition for a considerable period of time, in contravention of the terms of the policy on that subject. Again the evidence was conflicting. There was warrant for a finding that a permit, covering the vacancy, had been duly issued to the insured by the agent before the fire. His authority to issue such a permit on proper showing was not denied. If it was issued and delivered to the assured, the fact that he did not actually attach it to the policy itself would not, in our judgment, destroy its validity. The verdict has Settled the issue as to vacancy. Apart from this,-however, we are urged tó de — 113 — clare that as against the mortgagee, the use-plaintiff in the action, this defense was not available to the appellant company. This brings us to a more careful consideration of the nature and effect of the mortgage clause already referred to; and of the rights and interests of the mortgagor owner and the mortgagee respectively, in an action like the one that is before us. We do not think it important to expend time or effort in attempting to determine whether the relation assumed by the insurance company to the mortgagee, when a mortgage clause is attached to a policy, should be called a covenant or a condition. Sound legal principles cannot be nourished, sustain their life and maintain their growth merely upon the names of things. Nor do we accomplish anything by classifying, too broadly, the new relation created by the mortgage clause. There is, beyond peradventure, a contractual relation created different from that theretofore subsisting between the company and the owner. Nevertheless the duration of the life of the new contract is fixed in the terms of the policy. The limitation of the money liability of the company is to be found there and not elsewhere. The subject-matter of the insurance is defined and described in the language of that instrument. The things therein prescribed to be done after the occurrence of a loss still remain as obligations that must be complied with. It seems clear then that, although a new relation is created between the company and the mortgagee, that relation cannot be entirely dissociated from the policy of insurance, which is the foundation upon which it must rest. The clause referred to begins with the declaration that “The loss or damage, if any, under this policy shall be payable to Joseph M. Stark, as first mortgagee, as his interest may appear.” Had the clause stopped here, as such clauses did in earlier days, it would be plain enough that the mortgagee would be but the nominee, to whom the damages suffered by the insured should be legally payable; and so, in the earlier cases, it was held such a clause vested — 114 — in the mortgagee no other or different rights, as against the insurance company, than those possessed by the owner who procured' the insurance. Owing to the very necessities of the situation, such protection was found to be wholly inadequate to warrant a loan of money on the security of improved property which could easily be destroyed by fire. In many instances the benefit of insurance might be entirely lost by the ignorance, carelessness or fraud of the owner of the property. Unless, therefore, some better protection for the interests of those, willing to lend money on the security of improved property, could be agreed upon, property owners would necessarily be deprived of the enjoyment of one of the most valuable incidents of their ownership. Thus began the development of what is now practically known in the insurance world as the “union” or “standard mortgage clause.” We quote again from the clause attached to the policy in this case, “and this insurance, as to the interest of the ■ mortgagee only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property......nor by any change in the title or ownership of the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy......provided, also that the mortgagee shall notify the company of any change of ownership or occupancy or increase of hazard which shall come to the knowledge of the said mortgagee,” etc. Serious defense is urged on the ground that the plaintiff Kilgallon at no time was the sole owner of the property insured, but that he, or he and his wife together, were the owners of but an undivided one-half thereof. The answer to this contention is twofold. The decisions of the Circuit Court of Appeals of the 8th Federal Circuit have been everywhere recognized as of much weight, even in the consideration of questions as to which the courts of the individual states may properly determine their own policy. In Syndicate Insurance Co. v. Bohn, 65 Fed. Rep., p. 165, that court had to deal with a case — 115 — where a policy of insurance, as between the company and the insured, was void from the moment it issued. This situation resulted from the fact that the insured had at one time been the sole owners of the property in question and during their ownership had procured valid insurance against fire loss. They conveyed the property to a corporation and afterwards renewed the policies of insurance in their own name, without any notice to the insurance company of the fact that they had parted with the title. In these policies the owner of a mortgage upon this property had been protected by a mortgage clause substantially, if not literally, like the one before us. In determining that the right of the mortgagee to recover was not destroyed by the fact that the mortgagors themselves could have recovered nothing, Sanborn, J., in a learned opinion, thus reasons out the questions involved: “The agreement evidenced by this mortgage clause was therefore a valid contract between the mortgagee and the insurance companies, made upon sufficient consideration for the evident purpose of protecting the indemnity guaranteed to the mortgagee by these companies against destruction by any act or neglect of the mortgagors. Was it that contract that the indemnity of the mortgagee should not be protected against any prior act or negligence of the mortgagors? There is no such restriction in the contract. It provides that the mortgagee’s interest shall not be invalidated by any act or neglect of the mortgagors, by any occupancy or vacancy or by any change of title or possession of the premises, provided that the mortgagee shall notify the insurance company of any change of ownership, etc.,......It provides that when the insurance company pays to the mortgagee any loss under the policy, for which it claims that no liability to the mortgagors existed, it shall be legally subrogated, etc.,......and it finally provides that if the mortgagee assigns the mortgage, the agreement contained in the mortgage clause shall be binding between the insurance companies and the assignee, without notice — 116 — to the company of the assignment. What apter terms could be chosen to effect a separate insurance on the interest of the mortgagee; to free that insurance from any possible influence of “any act or neglect of the mortgagors and to make it dependent solely on the course of action of the mortgagee and the insurance company? None occur to us. And these terms are found in a contract between the mortgagee and the insurance company. They secure to the insurance company certain rights in the contemplated contingency that the mortgagee’s contract of insurance may be valid when that of the mortgagors is void, and they expressly provide that this contract shall run with the mortgage. When this mortgage clause was attached to the policies in suit, it had been introduced and generally adopted by insurance companies and mortgagees to secure indemnity to the latter. The purpose of this introduction and adoption had been to protect that indemnity against every act and neglect of the mortgagors, whether prior or subsequent to the issue of the mortgage indemnity clause. Ten years before the highest judicial tribunal of the State of New York (Hastings v. Insurance Co., 73 N. Y. 141) had declared that a mortgage clause which contained these provisions accomplished that purpose, and every court whose attention had been called to the question had approved that decision.” Were it necessary now to adopt or reject the view there accepted by the circuit court of appeals, it would be difficult to escape a conclusion supported by such persuasive reasoning and buttressed by such substantial authority. It would answer every contention of the defendant in the present case as to the line of defense we are now considering. But we do not think it necessary to go so far, and therefore it is wiser to leave the ultimate attitude of the courts of Pennsylvania on that question open for further consideration. The written commission of the local agent who issued the policy in question, was put in evidence, and from it we learn that such agent was authorized to receive pro — 117 — posáis for insurance, to receive moneys for the same, and to countersign and issue policies of insurance, etc. The act of such an agent, done within the apparent scope of the authority thus conferred, was the act of the company, and the knowledge of such agent obtained in the discharge of Ms duties was the knowledge of the company. The record before us does not exhibit the written and recorded evidences of the title. It appears to have been generally conceded at the trial that at some time in the past, the father of the legal plaintiff and the ancestor of the use-plaintiff, were tenants in common of a tract of land containing something over three acres, each owning the undivided half. It also appears to have been assumed that the legal plaintiff, or he and his wife together, had succeeded to the title of his father. He testified that after having held the whole of the tract in common for some years, he became desirous of having it parted, so that he might enjoy his own portion of it in severalty. He testified that he communicated his wishes on this subject to Stark, or his predecessor in title, and that it was agreed the property should be divided and that the necessary work on the ground should be performed by a surveyor named by Stark. The plaintiff went and employed him, brought him to the ground and he ran a line which divided the property into two equal parts and drove the stakes necessary to mark the line. For a number of years thereafter the plaintiff occupied his acre and a half, or thereabouts, in severalty, while the use-plaintiff Stark in like manner occupied his portion of it until he sold it to a coal company, which now owns it. The plaintiff had insured in his own name the building on his end of the property during a number of years, and no one questioned his right. When he took out the policy in suit, he had concluded to increase the amount of the insurance he had previously carried and had the company’s agent come, to the property to examine it for himself and determine whether or not the company would approve an increase in the amount of in — 118 — surance. At that time he declares he laid the whole situation with regard to the title before the agent, and not only told him of the partition that had been effected, but showed him the line the surveyor had run and marked on the ground, and thus communicated to the company every fact necessary for it to know in relation to the title to the property it was about to insure. The agent who was a witness made no denial of this testimony. The company through its agent issued its policy to the legal plaintiff as if he were the owner of the property, received and retained the compensation it demanded for such insurance and carried the same without question until the time of the fire. We cannot see on what legal or moral ground it can now be heard to declare that at most it insured but the undivided one-half interest in the property and that the verdict of the jury representing the value of that property should be cut in two. This would simply result in permitting the company to escape one-half the liability it was paid to assume. Not by any possibility do we think it could be in any danger of another action at the instance of Stark, with whom it never contracted, nor is there any other individual who could begin or maintain such an action. On the ground, therefore, that the company was visited with knowledge of the exact condition of the title before it issued its policy, we conclude it ought not now be heard to say that the plaintiff had forfeited his right to recover, or any part of it, because he can exhibit no paper title as the sole owner of the property. In an action like this we cannot adjudicate the title. We have neither the parties nor the legal machinery to judicially determine in whom the ownership, in fact and in law, resides. We simply say to the company the policy contained a certain provision that would enable you, in a proper case, to take defense along certain lines. You may, if you choose, decline to avail yourself of such a defense; or you may so act towards the assured that the law will not permit you to use it. That possible issue is not then litigated, it simply dis — 119 — appears from the controversy. This consideration would shatter the defense here set up upon principles heretofore frequently recognized by the courts of the State of Pennsylvania: Clymer Opera Co. v. Ins. Co., 50 Pa. Superior Ct. 639. For this reason we do not undertake to declare at this time, as the final judgment of this court, that the terms of the contract created by the mortgagee clause would prevent the insurance company from advancing and maintaining such a defense as we have been considering. We prefer to rest our judgment on the ground that the knowledge of the agent estopped the company taking the defense set up. Upon a review of the whole record, we are satisfied that the learned court below steered a true course in disposing of the various questions so earnestly urged there and here and the assignments of error must therefore be overruled and the judgment affirmed.