Allen v. Watertown Fire Insurance

W. Allen, J. The plaintiff relies upon the case of Graves v. Hampden Ins. Co. 10 Allen, 281. In that case, a mortgagor, who had agreed to keep the buildings on the mortgaged premises insured for the benefit of the mortgagee, procured of the defendant a policy of insurance payable to the mortgagee in case of loss, which contained the provision that, if the title of the property should be in any way changed, the risk should determine, and also the provision that “no sale of the property shall affect the right of the mortgagee to recover in case of loss under the policy.” After the title of the property had been changed by a conveyance by the mortgagor, the buildings were burned. The defendant paid the mortgagee the amount of his 482 debt, which exceeded the amount of the loss, and took from him an assignment of the mortgage. The purchaser of the equity of redemption brought a bill to redeem, and the question was whether the amount of the loss was to be applied in part payment of the mortgage debt. And the court held that it should be, for reasons set out at large in the opinion by Mr. Justice Dewey. The reasons, stated briefly, were, that the policy was procured by the mortgagor at his cost, and was one which he might cause to be enforced for his benefit, and the avails applied first to discharge his debt, and the surplus to be paid to him; that he had lost the right to the surplus over the debt by his alienation, but his right to have the amount of the loss applied on the mortgage debt was preserved by the provision that no sale of the property should affect the right of the mortgagee to recover. The court say: “ He (the mortgagee) might undoubtedly have enforced this indemnity against loss to the extent of his mortgage, but the question is, can he be compelled to do it by the plaintiff ? Does the fact that he might recover for this loss to the amount of his mortgage debt operate to require him to do so, and to cancel his mortgage debt to the amount he is thus entitled to receive ? ” “ Has the plaintiff any such interest in the policy that he can require this ? ” That after the loss the mortgagee had “ an absolute right to receive $2500 from a source which the mortgagor and the owner of the equity had provided as a means, in a certain event, of paying that amount upon the mortgage. Having this available fund thus provided by the mortgagor and those succeeding to his rights, and the contingency having happened upon which he was to receive it, we think it must be held to be his duty to receive it and apply it to the payment of the debts secured by the mortgage.” The policy in the case at bar seems to have been drawn ex pressly to meet the decision in Graves v. Hampden Ins. Co. After specifying matters which shall render the policy void, it provides that the insurance, “ as to the interest of the mortgagee only therein,” shall not be invalidated by acts of the mortgagor, and that, when a loss after a forfeiture is paid to the mortgagee, the company shall be subrogated to his rights under the mortgage to the extent of such payment, and may pay the full amount of the debt to the mortgagee and require an assignment 483 of the mortgage. In other words, the policy provides that the amount due for a loss after a forfeiture shall not he a fund for the payment of the mortgage debt, but that, upon payment of the loss, the mortgage shall be a fund for the reimbursement of the defendant. The contract is, that after a forfeiture the insurance shall be exclusively for the benefit of the mortgagee; that the .mortgagor and those claiming under him shall have no beneficial interest in the policy, and that payment to the mortgagee shall not discharge the mortgage, but subrogate the defendant to the mortgagee’s right in it. It was a contract which the parties were competent to make, and we know no reason that they should not abide by it. The plaintiff cannot redeem the mortgage without paying the full amount of the debt. Davis v. Quincy Ins. Co. 10 Allen, 113. Springfield Ins. Co. v. Allen, 43 N. Y. 389. Foster v. Van Reed, 70 N. Y. 19. Thornton v. Enterprise Ins. Co. 71 Penn. St. 234. Honore v. Lamar Ins. Co. 51 Ill. 409. Ulster County Savings Institution v. Leake, 73 N. Y. 161. Decree affirmed.