Moulthrop v. Farmers' Mutual Fire Insurance

The opinion of the court was delivered by Redfield, J. The contract of insurance counted upon was made October 11, 1871, by Norman Hudson with the defendant. Hudson then owned the fee of the insured premises, subject to a mortgage to one Perkins for $400 and some interest. On the 7th of. J'unp, 1872, he sold said premises to Remington, with covenants of title, and assumed expressly the Perkins mortgage. In •this deed was the following proviso, or condition: “ Provided, however, that if the said Remington shall fail to pay me, the said Hudson, fifteen hundred dollars and interest annually from this date, so soon as he shall dispose of and deed away said land, and at all events within five years from this date, then this deed is to become null and void ; I, the said Hudson, fulfilling at the same time my above assumed obligation to provide for said mortgage to said Perkins, and I, the said Hudson, to still retain my insurance against fire on said premises, for security of said sum of fifteen hundred dollars, and any other insurance proper to be had — 131 — or taken on the same, said Remington to negotiate for his own interest in any way consistent with this transaction. And it is further agreed that well-secured notes on time not exceeding five years shall be taken by me, the said Hudson, in payment by said Remington for said sum hereinbefore stipulated to be paid by him, as a condition of this deed, such notes not to be on longer time than those which said Remington shall take in payment for the premises hereby deeded him when he shall sell and deed the same to a purchaser.” The said Hudson assigned said policy to said Remington, who executed his premium note to the defendant, and the same was approved by the company. Hudson retained the policy, in accordance with the condition of said deed, “ for security of said sum of fifteen hundred dollars.” On the 19th of August, Hudson conveyed the premises by quit-claim deed to the plaintiff; and Hudson and Remington joined in the assignment of said policy to the plaintiff. The assignment written on the policy is in these words : “ Having sold my mortgage on the buildings within mentioned, and the land whereon they stand, to Robert Moulthrop, of. Rutland, for fifteen hundred dollars, I hereby assign to him the within policy, to hold as collateral security, for the performance of the conditions of said mortgage.” The defendant gave its consent to said “ assignment and incumbrance ” August 20,1873. On the 4th of September, 1873, Remington sold by quit-claim deed said premises to Allen and Drew, with this condition : “ It being understood that the said Allen and Drew are to have any and all rights of me, the said Remington, existing by reason of insurance ; and said Remington to pay all taxes assessed on said place on the present grand list; and said Remington to have the rents up to the 7th instant, and pay up the interest on said fifteen hundred dollars incumbrance to the said Moulthrop to the said 7th of September.” Allen and Drew conveyed said premises to Perkins and wife, January 30,1874. Perkins and wife conveyed the same to Hines, March 12, 1875, and Hines, on the same day, conveyed the same to Michael Murphy ; and, on the 29th day of the same March, Michael Murphy conveyed the same to Patrick Murphy, with covenants of title, “ except a mortgage of fifteen hundred dollars and interest, held by Robert — 132 — Moulthrop, which said grantee assumes and is to pay.” This policy was cancelled on the application of Michael Murphy, March 30, 1875.' And on the 31st of March, 1875, Patrick Murphy procured a policy of insurance on the same property from the Springfield Insurance Company in the sum of $3,000. Was this policy avoided by the conveyance of the premises from Allen and Drew to Perkins and wife, and by the several mesne conveyances to Patrick Murphy ? It is claimed by the plaintiff that in the conveyance by Hudson to Remington the fee of the premises remained in Hudson, and that he conveyed the fee to the plaintiff, and that this case should be controlled by Tittemore v. Vt. Mutual Fire Insurance Co. 20 Vt. 546. In that case the plaintiff conveyed to Yan D’Waters, and took back a re-conveyance at the same time, with the condition that if the grantor should pay the plaintiff $2,000 within three years, the deed should be void. Van D’Waters never paid anything, and never promised to pay anything ; the three years had expired and Tittemore had remained in possession all the while. In this case, Remington paid part of the consideration at the time of purchase,. took the possession of the premises, and was subject to the condition that his title would be defeated if he failed to pay a fixed sum within five years. Van D’Waters could obtain title by paying $2,000 within three years. Remington would lose title if he failed to pay $1,500 within five years. Van D’Waters had neither title, possession, nor the right of possession. Remington had actual possession and the right of possession against the world, and title, subject to defeasance. And we do not see how the relation between Hudson and Remington differs in form or legal character from the ordinary case of the conveyance of the absolute title, with mortgage back to secure a portion of the purchase-money. In this case a portion of the consideration was paid, and the defeasance was inserted in the deed of conveyance. In the ordinary case of conveyance and mortgage, the defeasance is inserted in the latter, but both instruments are construed together as one and the same contract, and effectuate the conveyance of a defeasible title to the purchaser. In the Tittemore case Van D’Waters was bound to comply with a condition precedent before he obtained title ; in this case Remington — 133 — was bound to comply with a condition subsequent, or he was subject to lose his title. The plaintiff, then, held a mortgage, payable within five years, which had not expired at the time of the loss. It is true that the condition recites that payment is to be made “ so soon as he [Remington] shall dispose of and deed away said land, and at all events within five years ”, and subsequently, “ it is further agreed that well-secured notes on time not exceeding five years shall be taken by me, the said Hudson, in payment . . . not to be on longer time than those which said Remington shall take in payment ” for said premises. So that it is doubtful if there had been any breach of the condition. At all events, the case does not show that the plaintiff had made demand of payment, nor that there had been failure to pay the annual interest. Remington was the owner of the premises, subject to a mortgage to Hudson, and Hudson by his quit-claim deed assigned said mortgage to the plaintiff, who held all the rights of Hudson, and no more. And this relation was fully understood by the parties. In the assignment of the policy by Hudson and Remington to the plaintiff it is recited, “ Having sold my mortgage on- the buildings within mentioned ... I hereby assign to him the within policy to hold as collateral security for the performance of the conditions of said mortgage.” It is, therefore,- no novel construction of the deed that might work a disappointment of the just expectations of the parties in interest. The plaintiff held this policy as collateral security. He might resort to the policy for the payment of his debt; or to attachment or foreclosure, to enforce payment. The plaintiff, having a pledge of the policy as collateral security for a debt, but no possession or control of the premises, could do no act to avoid the policy. But if Remington saw fit to convert the dwelling-house into a powder-mill or oil-mill, the risk would be enhanced and the policy avoided ; so, by force of the charter and by-laws, which are made a part of the contract, and well-settled insurance law, the alienation of the property insured avoids the contract of insurance. ' The plaintiff’s counsel concede in their brief that Remington became the owner of the equity of redemption in the premises, and was the owner of an insurable interest. It is certain that — 134 — Remington was the owner of the policy, subject to the pledge as collateral security for his debt, and if there were a surplus above the debt, it belonged to him ; or if the debt became satisfied in any other way, the policy and its avails were wholly his. He alone was bound to pay the annual premiums, and, in fact, was the contracting party with the defendant. It is to be noticed that, by the contract between the parties, the interest in, and avails of, the policy were wholly the mortgagor’s ; if paid to the plaintiff, it paid the mortgagor’s debt; if in excess of the mortgage, the residue belonged to the mortgagor. The plaintiff gave no premium note, nor in any way assumed to pay the premium. The plaintiff did not become a member of the company, and owed no duty to the company. The proceeds of this policy, in case of loss, were assigned to the plaintiff as collateral security. Remington was the owner of the policy and its avails, subject to a pledge that its proceeds, in case of loss, should, to the extent of a certain debt, go to pay that debt. If the plaintiff had insured his mortgage interest in the premises, and paid, or assumed to pay, the premiums, the money received upon that policy for loss would not enure to the benefit of the mortgagor, nor to any extent pay the mortgage debt. But, in this case, the mortgagor, rightfully in possession, is wholly responsible to the defendant for compliance with all the duties required of the insured by the policy or contract of. insurance. And this is not only a general and necessary rule, but it is an express stipulation in the contract. The by-laws provide that the insured may conditionally assign the policy to his mortgagee or other person, as collateral security, by complying with certain rules ; and it is expressly stipulated therein that “ in case of loss, the mortgagee or assignee shall have no greater rights than the party insured, and be subject to the same rules.” The equity of redemption would seem, from the deeds, to be a valuable property, and a property insured by this policy ; and the deed from Hudson to Remington conveyed, by its own operation, the title in fee subject to defeasance, if the residue of the purchase-money was not paid within five years; and though the condition, or proviso, was inserted in the deed of conveyance, it vested in Hudson, the grantor, the same right and interest in the — 135 — premises as if he had conveyed absolutely, with mortgage back to secure the unpaid balance of the purchase-money. In such case the two deeds would be construed together as the evidence of one contract and transaction. When Allen and Drew conveyed the premises to Perkins and wife, they became devested of all insurable interest in the premises; and, as the policy was not assigned to their grantees, it follows that the insurance by this policy no longer subsisted as to that interest in the premises, which we hold was the fee. But in fire insurance the personal character of the insured for care and trustworthiness, is a cardinal consideration, and universally recognized. Hence, the well-established rule, and the express provision in this policy, that the insured cannot convey to a stranger, and make him a member of the company without its consent; and if he aliens the property insured, the contract of insurance comes to an end. It seems not denied that Allen and Drew were the owners of an insurable interest in these premises, which was insured to them in this policy, and that insurance became extinct by their sale of the premises. It becomes, therefore, important to inquire whether, when the policy is avoided by act of the party insured, in possession, and owning the fee of the premises subject to incumbrance, it becomes void, also, as to all persons collaterally interested therein. We need not discuss whether the case would be in anywise different if the plaintiff, holding the assignment for collateral security for a debt, had guaranteed the payment of the future premiums, and thereby became by new and independent contract a member, or quasi member, of the defendant company. No such fact is in this case. The plaintiff had a debt secured by mortgage — a chattel interest, and this policy, assigned to him as further and collateral security ; he was under no duty or contract to perform all those duties necessary to be performed to keep the insurance in life and continuing force. The plaintiff had no right of possession or control of the premises. If the contract becomes void by act of the insured, it must be held void as to all persons incidentally or collaterally interested in the policy. If otherwise, then Remington or Allen and Drew might have converted this dwelling-house into a match factory, or powder-house, or even — 136 — burned the property purposely, and the defendant company have been without remedy. This cannot be. The plaintiff took this security as it was, with the risk of the continuing duties to be performed by the insured, and must stand upon the rights of the insured. This, we think, is consonant with legal principles, sound reason, and authority. Mr. Flanders in his work on insurance, page 454, after reviewing the cases, says : “ The assignee of a policy is subject to all the conditions in the policy, and takes the instrument, with the risk growing out of the conduct of the assignor in violation of his contract; the assent of the insurers to the assignment does not create a new contract, or vary the term $ of the policy ; it only preserves it from forfeiture. Hence, when a policy against fire is assigned to a mortgagee, with the assent of the insurer, in case of loss the assignee cannot recover, if it can be shown that, after the assignment, there was a breach of the conditions by the assignor, such as effecting an additional insurance. In other words, the assignee can only recover when his assignor could have done so had no assignment been made.” And Mr. May in his work on insurance, speaking of the assignment of a policy to the mortgagee as collateral security, page 465, says : “ It is no part of its purpose to enlarge the engagements of the insurers, nor to waive the conditions on the performance of which their liability depends. It is not to give new privileges to the insured which without it he would not have; but it is solely for their protection. The assignment does not change the contract. It simply converts one of the parties into a trustee for a third person, and every condition upon which the liability to pay is made to depend, remains as before . . . the original contract with the mortgagor still subsists, and it is his interest which is insured. The assignee must claim in his right, and not in his own. It is only what the mortgagor may have a right to recover under the contract that the assignee can, in any event, claim. If, therefore, the mortgagee, before the loss happens, violates a provision of the policy whereby he forfeits the right to recover, his assignee is equally barred of his remedy.” The same author, speaking of those few cases (most of which have been referred to by the defendants), which have held that such — 137 — assignee might have greater rights than his assignor, page 461, says : “ These cases rest upon the authority of Traders’ Insurance Co. v. Roberts, 9 Wend. 404, and the other New York cases following that, all of which, as we have seen, have been overruled.” See Buffalo Steam Engine Works v. Sun Mutual Insurance Co. 17 N. Y. 401, and the great number of cases cited by the author from Massachusetts, Pennsylvania and other States, and in the English courts. As we have seen that the insurance was of the house and premises of which the mortgagor and his grantees were the general owners, the alienation of such title avoided this policy. The title of Allen and Drew, by several mesne conveyances was vested in Patrick Murphy, subject to a mortgage to Robert Moulthrop of $1500, which said Murphy assumed. Murphy then took out a policy in another company for $3000 on the same property ; and it is said in argument (we have no copy of the policy) that it is expressed in the policy to be for the benefit of this plaintiff to the extent of his mortgage. There is no reason suggested or apparent why this is not a valid subsisting policy. It is quite apparent that Murphy supposed that his new policy was the only insurance on the premises. Although the policy assigned to the plaintiff lapsed when Allen and Drew conveyed away the title, and was never assigned to Murphy, yet, Murphy, for greater caution, had the old policy cancelled with the defendant, and then procured one in another company for twice the amount and for like protection of the plaintiff’s mortgage, which he had assumed. Such new policy must have been intended by the parties as an enlarged insurance in substitution for the old policy, which had then come to an end ; and being a valid insurance, that act would have avoided the policy in suit, if it had riot ceased to be a binding contract long before. There are some matters of a technical character that suggest themselves, which we need not discuss. When insured premises are conveyed, and policy assigned to the grantee .and confirmed by the insurer, and the grantee assumes the payment of the premiums, it is a new contract, and the right of action is in the assignee. But when the policy states that, in case of loss, it is for — 138 — the benefit of the mortgagee or other creditor to the extent of his debt, or, if assigned as collateral security for a debt, and to the extent of his debt, the assignee assuming no duty under the contract, it would seem, upon authority, that the contract is between the insurer and the mortgagor, who has the right of action, and will be held as the trustee for the mortgagee. But this question we do not decide. Judgment reversed, and cause remanded.