Sun Insurance Office v. Heiderer

Mr. Justice Goddard delivered the opinion of the court: It will be seen that the answer does not contain any defense to this action based upon the ground that Rosenthal had violated any of the conditions of the policy, or set out the facts upon which the appellant predicated its claim that no liability existed in — 297 — his favor. It admits, as averred in the complaint, that it did claim that as to Rosenthal no liability existed under the policy, and thereupon demanded that the appellee should assign to it an interest in her mortgage before it would pay to her the amount of the loss, and that appellee, in order to secure such payment, executed and delivered an assignment of an interest in her mortgage to the extent of such payment. The theory of the 'defense to the action is, that appellant, having paid the amount.of the loss under the policy to the mortgagee, as it wa's bound to do by the express terms of the mortgage clause, and that having, as therein provided, claimed at the time of such payment that no liability therefor existed as to the mortgagor, it became legally subrogated to the extent of such payment to the rights of the mortgagee; in other words, the appellant predicates its right to subrogation upon the bare statement that it .claimed that there was no liability on the part of the company to the insured, without alleging any facts which, under the terms of the policy, would exempt it therefrom. By the contract of insurance Rosen: thal was entitled to indemnity as well as the mortgagee ; and while the loss was to be paid to her, such payment would inure to his benefit by reducing to that extent his mortgage indebtedness. Before he' can be deprived of such benefit it must be shown that he has violated the provisions of the policy in some particular that renders it void, as to him. His rights do not depend upon the mere claim of the insured. The appellant, therefore, to avail itself of the right to be subrogated to the rights of the mortgagee, instead of applying the payment of the loss toward the satisfaction of the mortgage, must allege and prove a state of facts which, under the contract of insurance, would entitle it to exemption from liability to the mortgagor.—Traders’ Ins. Co. et al. v. Race, 142 — 298 — Ill. 338; Hare v. Headley, 54 N. J. Eq. 545; Home Ins. Co. v. Marshall, 48 Kan. 235. In Traders’ Insurance Company et al. v. Race, supra, the court had under consideration a mortgage clause similar to the one before us. The insured premises were destroyed by fire and the company, claiming that the policies were void as to the owner because the building had ceased to he occupied as a dwelling house before and at the time of its destruction, paid the trustee the amount of the loss, and the trustee assigned and delivered the notes and trust deeds to the company. The company brought suit to foreclose the trust deeds. Mrs. Race, the owner, brought a suit at law upon the policies against the insurance company. By supplemental hill the prosecution of this action was enjoined. On the hearing the superior court found that the policies had severally been forfeited under the nonoccupation clause, and entered a decree in accordance with the prayer of the hill. On appeal the appellate court reversed the decree of the superior court and dismissed the suit for want of jurisdiction. The supreme court affirmed the decision .of the appellate court, hut not upon the ground upon which its judgment was based, that is, want of equitable jurisdiction of the case. In its opinion the supreme court, while recognizing that Race’s interest was liable to forfeiture for breach of the conditions of the policies, and if such forfeiture was incurred the company had the right, on paying the mortgage debt, to he subrogated to the mortgagee’s right as against the mortgagor, used this language applicable to the question here presented : “The mortgage clause, however, provides, that in case of loss under such circumstances as that appellants shall deny their liability to the mortgagor, they may pay to the mortgagee the sum due under — 299 — the mortgage, and become entitled to an assignment of the mortgage debt and all securities therefor. The right to subrogation, however, cannot be said to depend upon the naked claim of appellants that there is no liability on the policies to appellee, but the facts must warrant such claim. The claim, to entitle them to an assignment and subrogation, must be made in good faith, and be based upon a state of facts which, under the contract of insurance, would entitle them to exemption from liability. The rights of a party insured cannot be made to depend upon the arbitrary claim of the insurer.” And, assuming that equity had jurisdiction to enforce the contract of subrogation and to foreclose the mortgage and incidentally to pass upon all questions upon which that jurisdiction depends, further said: “But to entitle appellants to be subrogated to the rights of the mortgagee and to foreclose the mortgage, the burden is upon them to prove that the loss occurred under circumstances exempting appellants from liability to appellee for the loss of the property # # And, after commenting upon the evidence relied upon by the insurance company to show a forfeiture of the policy, concluded that the evidence did not warrant a decree of forfeiture of the policies, and that appellee had a right to have the mortgage debt paid for her benefit. In Hare v. Headley, supra, in considering a like mortgage clause and holding that it constituted a valid contract between the insurance company and the mortgagee, the court said: .“It was claimed by complainant’s counsel that the right to subrogation arose under the contract by mere claim of nonliability as to the owner. * * * As to the owner, in such ease subrogation can arise — 300 — only as a right given by law, upon facts proved, and the forfeiture in fact of the policy as against him is the legal prerequisite to any independent insurance of the mortgage under this contract, and must he proved as .one of the issues in the cause, which the owner and those claiming under him may require to he proved. If the policy was not in fact forfeited as to the owner at the time of the payment, then the payment to the mortgagee must be considered as a payment to the mortgagee as ¿ppointee of the owner, and not under the independent contract, and the owner would be entitled to have the payment credited on the mortgage debt.” It is manifest, therefore, that under the plead.ings in this case the judgment awarded by the court below was justified. Counsel for appellant, however, contend that the proof of loss included in the documentary proof offered by it upon the trial disclosed facts sufficient to avoid the policy as to Eosenthal and to show that no liability existed as to him thereunder.. Our attention is called to several decisions of this court wherein it has been held that, when a case has been tried and decided upon the theory that the. evidence introduced was within the issues made hv the pleadings, the defeated party may not avail himself of the objection that the pleadings did not warrant the admission of such evidence. We do not think that this rule can be invoked upon the record before us. The plaintiff in no way recognized this issue as being in the ease, and this evidence, although not specifically objected to, was so clearly outside of any issue made by the answer that the trial court was justified in disregarding it. The affidavits in support of the motion for a new trial show that counsel for appellant were fully advised of the facts set out in its proposed amendment — 301 — to the answer, and being of the professional opinion that it was not necessary to plead a violation of the terms of the policy as a defense to the present action, intentionally omitted to plead or set ont in its answer the facts constituting such alleged violation. In these circumstances no element of accident or surprise such as the code names as grounds for .a new trial appears, and the court below did not abuse its discretion in overruling the motion.—Bransford v. The Norwich Union Fire Insurance Society, 21 Colo. 34; The Salida Building & Loan Assn. v. Davis, 16 Col. App. 294. Counsel for appellant place some stress upon the joint receipt of Mrs. Heiderer and Rosenthal as constituting a defense to a recovery in this action.. We do not think that under the issues in the ease the receipt is entitled to any such effect. There is no allegation of payment to Rosenthal. On the contrary, the answer expressly admits the averment of the complaint to the effect that Rosenthal had received no benefit or payment whatever for the loss suffered by reason of the-fire, but the whole amount, to wit, $150, had been paid to the plaintiff, Rose C. Heiderer. And furthermore, the theory of the defense throughout is based upon the fact that no liability existed as to Rosenthal, and their right to subrogation was based upon their claim that no such liability existed. For the foregoing reasons we are compelled to •affirm the judgment. Affirmed. Chief Justice Steele and Mr. Justice Bailey concur.