Ellis v. Insurance Co. of North America

Brewer, J. Two questions have been presented and argued; one of them of great difficulty as well as of some importance. The first question arises upon these facts: One E. K. Ellis was the owner of property upon which he had taken out insurance policies, one of them that in suit. He sold that property to the plaintiff, William Ellis, and assigned the policy. The consent of the company was given to the assignment. At the time of the assignment there was an incumbrance upon the property in the shape of three or four mortgages. The policy provides that it shall be void if the insured is not the sole, absolute, and unconditional owner; and it is insisted that ownership is not equivalent to the mere matter of title, but goes to the interest held in the property, and that if that interest is subject to any condition the policy is vitiated. Plaintiff’s ownership is held subject to this condition, that he pays the mortgage. Therefore it is not an unconditional ownership. We are all familiar with the fact that applications for insurance policies usually contain two series of inquiries, independent in their nature, —one as to the matter of title, and the other as to that of incumbrance. Of course, different policies have different forms of stating these two lines of inquiry, but they are entirely independent. In one there is provision as to any incumbrance, its nature and extent; in the other there is inquiry and provision as to the character of the title, fee-simple or otherwise. It is further known that the policies and the blanks for application are prepared by the insurance companies, and it is familiar law that the stipulations and provisions therein are to be construed strictly against the insurer; that if there is any fact respecting which information is desired, or any provision which it is deemed necessary to insert, it is the duty, because it is the interest, of the insurer to see that there is [649] a clear and expressed question or stipulation covering the matter. With those two well-lcnowu facts before us, it seems to us that this stipulation must bo held to refer, not to the matter of incumbrance at all, but to the character and quality of the title, whether that of a lee-simple or leasehold, or otherwise. And, as it appears unquestionably that the absolute title.was in the party, we have with little hesitation come to the conclusion that the policy is not vitiated by these facts and that stipulation. The other question is more serious and difficult. The policy contains a provision to this effect: that if the insured incumbers the property the policy shall he vitiated. The original party insured did place incum-brances upon the property. They were in existence at the time he sold the property to the plaintiff, at the time the assignment of the policy was made to the plaintiff, and at the time the company gave its consent. The company was ignorant of that fact, as was also the assignee and purchaser. Now, the assignment was assented to by the company subject to all the terms and conditions of the policy. And it is insisted, on the one hand, that the universal rule in respect to transfers of all dioses in action or other contracts, with the single exception of negotiable paper transferred before maturity, is that the assignee simply steps into the slices of the assignor; that he is subjected to all his burdens and liabilities, and has no oilier or higher rights than such assignor. Hence, as it is conceded, and there can be no doubt about it, that this policy while it remained with the assignor, his property, and before the sale and assignment, was vitiated by this incumbrance, was voidable at the instance of-the insurer, the assignee has no higher right than the assignor had, and the policy is vitiated in his hands. On the other hand, it is insisted that this, which is called an assignment, has not the legal effect of a mere transfer of ail existing right, but is equivalent to the creation of a new contract, — a contract springing into being at the moment the assignment is assented to between the assignee and insurer for the insurance of the property during the unexpired term. The authorities very generally say that where an assignment goes with an absolute sale of the property there is the creation of a new contract. If it is a new contract for one purpose, it is a new contract for all purposes, Tlie assignment is expressed to be subject to the terms and conditions of the policy. What does that mean? It is equivalent to saying that the assignee takes the contract as of present writing, containing the same terms and stipulations, binding Mm to the same duties, and subjecting him to the same liabilities, that were imposed by the contract in the first instance upon the assignor. In no other way can it fairly bo said that a new contract was made: tested by that rule the assignee agreed, as the assignor had agreed in the first instance, that he would place no "in-cumbrance upon the property, and that if he did the policy should fail. There is no pretense that ho has violated that stipulation thus construed. It may well be doubted whether the use of the technical terms, “assignment,” “assignor,” and “assignee,” are apt to describe the actual transaction. When the insured sells the property, that moment the policy [650] falls. He has no insurable interest. The policy ceases to have legal force as a policy. Can it be said he is assigning that which is nothing, and that the insurance company contemplates and assents to the transfer of that which has no legal existence? Take this case. Suppose a contract is made by which one binds himself to work for another for a period of one year at stipulated wages per month, with certain provisions regulating his conduct, and forfeiting his right to compensation in case of non-complianoe therewith. Pending that contract he assigns it to another, which assignment is accepted by the other party, and this new party goes on and does the work in the same manner during the balance of the year as was done by the party from whom he received this contract. In one sense of the term you may say there is an assignment, but really there is substitution of a new party for the old, the creation of a new contract upon the same terms as the old, containing the same conditions, but operative onty in futuro, and not subjecting the party doing the work to the burdens and penalties which had fallen on the assignor previous thereto under his contract for personal service. This is a practical question, and we must look at these matters in a practical light. When the purchaser buys the property, naturally the thought in his mind is insurance. It being Iris, and the old policy being dead, he looks for insurance. He finds a policy which had been in force, dead because of his purchase and cessation of the insurable interest in the assignor, yet which the insurance company is willing to have transferred to him. Would it not be an injustice to him if, after the insurance company has consented to that transfer, it could turn back to acts done by the person from whom he obtained the policy, and claim that tho'se acts vitiated the whole thing, and rendered it not liable to the assignee? Many policies contain the stipulation that if the house be left vacant for three months the policjr shall fall. Suppose a party buys a house ignorant of its history during the time the policy has been running, and the company assents to the policy; would it not be injustice for the insurance company to thereafter say that the policy was voidable on account of the vacation of the house for three months, and although he, the purchaser, has rested in the faith that his property was insured, it will pay him nothing on the loss? If such were the rule the assignment of policies would cease, and parties would'take out in every instance new policies. But it is said there is really no consideration for this contract on the part of the company; that the breach of the policy by the assignor forfeited all right to the unearned premium; and therefore the company received no consideration for any promise to insure for the unexpired term. The assignment of this policy is an assertion practically by the assignor of a right to an unearned premium, and the claim of such unearned premium, presented to the-assignee, is assented to by the company when it consents to the assignment. It matters not that there may have been no actual right to such unearned premium, for the recognition and compromise of a claim is consideration. Further than that, there would be the injury to the assignee as well as the benefit to the insurer to be con [651] sidered. Again, it is said that there can be no waiver without knowledge: that the insurance company was ignorant, (and that is admitted) of the fact of this incumbrance; and that it assented to the assignment and the transfer of the policy in ignorance of these facts; and therefore it should not be held to have waiyed its rights. There may be estoppel without knowledge. Suppose the insurance company had given a contract to pay a certain sum of money, a non-negotiable contract, and the party holding that contract had transferred it, assigned it to this plaintiff, and prior to such assignment the plaintiff had gone to the insurance company, and asked if that contract was in force, and the full amount due thereon, and he was told that it was; he could recover the full amount of that contract, although unknown to the insurance comjiany, and before the transfer and assignment, the assignor, having collections, which he was authorized thus to use, collected money belonging to the insurance company, and applied it upon that debt. There would be an es-toppel by reason of its statement that the full amount was due on that contract, which had misled the purchaser, and yet a statement made in ignorance of the real facts. This consent to the assignment, though not in terms a like statement, yet, dealing with things in a practical way, must bo construed to have a similar effect, and as a statement by the insurance company that it recognized that policy as a valid instrument. Surely it would be unjust to think that the insurance company put itself into the position of'assenting to the transfer of a policy which had no validity, going through the form of consenting to that which had no legal existence and was worthless. These considerations, although we concede that the question is one of not perfect transparency, lead us to the conclusion that this assignment must be taken, in the language of the text-books and the authorities, to create a new contract between the as-signee and the insurance company, — a now contract embracing, as of present writing, the same terms and stipulations as were embraced in the contract originally written between the assignor and insured. This being the case, these prior incumbrances did not vitiate this policy, and the motion for a new trial must be overruled. Love and Shiras, JJ., concur.