Rent-A-Car Co. v. Globe & Rutgers Fire Insurance

Pakke, J., delivered the opinion of the Court. The Rent-A-Car Company is a corporation which, at its principal office located at 701 East Baltimore Street, and a branch office at 1289-11 Light Street, and a second in the 3700 block of Eastern Avenue, carried on in Baltimore, in April, 1926, the business of renting automobiles for hire. About the middle of November, 1927, the business of the corporation, together with its automobiles and equipment and the unexpired term of its lease for 1239-11 Light Street, was sold to Myer M. Astrin, trading as Myers Drive-It-Your self Company, for $16,000, and on December 1st, 1927, the sale was completed by a delivery to the purchaser, who paid $1,000 in cash, and agreed to pay the remainder in monthly installments and to secure the seller by a lien on the automobiles purchased. Before the various documents of title contemplated by the seller and buyer were executed, an insurance policy was issued by the Globe & Rutgers Fire Insurance Company to Myer M. Astrin, trading as Myers Drive-It-Yourself Company, and the Rent-A-Car Company, to insure them for one year from December 1st, 1927, against loss or damage by fire, lightning and transportation or by theft, ¹⁷² robbery, and pilferage, in an amount not in excess of $13,500 of tbe actual cash value of the sold automobiles at the time of happening of any loss or damage because of any of the perils against which the insurance was written.

The premium was paid by the buyer, the policy was handed to him on December 1st, 1927, and he gave it to the seller to hold. On December 14th, 1927, the parties put in documentary form their contract by the Rent-A-Car Company executing and delivering to Myer M. Astrin, trading as Myers Drive-It-Yourself Company, a bill of sale for the automobiles sold and a sublease for the unexpired term in the Light Street premises; and Myer M. Astrin, trading as set forth, executing and delivering to the seller a chattel mortgage on the automobiles sold to secure the payment of the residue of the purchase price of $15,000 in monthly installments of not less than $150. The contemporaneous execution and successive delivery and recording of these legal instruments were in fulfilment of the agreement between the parties, and simply evidenced in a formal manner the terms of the bargain and sale, and so did not change in any respect the relation of the assured to each other or to the insurer. The buyer remained in possession of the premises and the subject-matter of the policy until January 3rd, 1928, when a fire occurred.

The mortgagee and mortgagor complied with the preliminary requirements of the policy and, they and the insurer having agreed that any action by the underwriter in investigating the cause of the fire and in ascertaining the amount of the loss and damage to the property by fire should not affect any right or liability of either the assured or the insurer under the policy, and the parties not being able hr agree as to the amount of the loss, appraisers were named, who selected an umpire, and the three, conformably to the terms of the policy, appraised the sound value of thirty-one automobiles, before the fire at $8,600 and the actual damage by fire at $5,275. The insurer declined to pay the loss. In an action at law brought by both of the named assured, the insurer successfully set up the defense that the plaintiff' ¹⁷³ JVIyer M. Astrin wrongfully set lire to the premises to collect the insurance on the automobiles; and the judgment at nisi prius was in favor of the defendant. The evidence on the record is; that Astrin was the sole incendiary, and that the Rent-A-Car Company, through its agents and servants, neither instigated, knew of, nor participated in Astrin’s wrongful act.

Astrin has not appealed, and the Rent-A-Car Company concedes, for the purpose of this appeal, the guilt of Astrin. So, the material facts will sufficiently appear from the preceding statement and the following relevant portions of the policy of insurance: “The Globe and Rutgers Fire Insurance Company, Incorporated, of the City of Row York, in consideration of the premium hereinafter mentioned does insure: A. The assured named herein, for the term herein specified, to an amount not exceeding the actual cash value of the property at the time any loss or damage occurs, nor, in any event, the limits of liability, if any, herein specified, against direct loss or damage from the perils specifically insured against herein to the automobiles herein described and the equipment usually attached thereto. * * * “B. Rame of Assured: Myers Drive It Yourself Co. and Rent-A-Car Co. “Address of Assured: 1241 Light St., Baltimore, Md. “Subject to all tbe provisions, exclusions, conditions and warranties contained in this policy, loss, if any,, payable, as interest may appear, to Assured and RenlA-Oar Co. * * * “C. Warranted by the Assured. “6. The automobile described is fully paid for by the Assured and there is no Lien, Mortgage or other Encumbrance thereon, except as follows: (Give particulars) Rotes. “If purchased on a deferred payment plan, tbe amount unpaid is $13,750, represented by.......... Rotes of $............each.

Due date of first note is.............., 19. ... * * * ¹⁷⁴ “Definition of Perils. “F. Fire, Lightning and Transportation. “(a) Fire, arising from any cause whatsoever, and Lightning. “M. * * * General Conditions. “Misrepresentation and Fraud. “This entire policy shall he void * * * in ease of any fraud, attempted fraud or false swearing by the assured touching any matter relating to this insur-anee or the subject thereof, whether before or after a loss.” The policy does uot present any serious difficulty of construction. The assured are specified in the appropriate and provided place as being both the buyer and seller. In the face of this explicit contractual definition, the circumstance that the address of the assured is given as 1241 Light Street does not destroy the import of the plain terms nsed, since both may well have adopted a common address for the purposes of the policy. Moreover, the omission of the address of one of the then assured is immaterial.

Again, the defendant relies upon the phrase “loss, if any, payable, as interest may appear, to- assured and Rent-A-Car Co.,” to qualify tbe promise of the defendant that it “does insure the assured named herein.” The complete answer to this argument is found in the fact that the nomination of the parties to whom payment is to be made as “Assured and Rent-A-Car Co.” is identical in person with the policy’s first declaration of the .assured as “Myers-Drive-It-Your self Co. and Rent-A-Car Co.”; and that if the name of the buyer were substituted for '“assured” in t-he second combination, the meaning and effect of the paragraph would remain unchanged. For convenience the expression buyer and seller have heretofore been used in speaking of the assured, but that relation ended with the completion of the sale, when the buyer became tbe owner of tbe chattels sold, and a borrower of $15,000 of the purchase price from the seller, who took a chattel mortgage from the buyer on the subject-matter of the transaction ¹⁷⁵ to- secure the payment of the loan. Although the formal documents of title had not been executed when the policy of insurance was issued, yet the policy disclosed enough to advise the insurer of the terms of sale yet* to be fulfilled. So, from the inception of the insurance, the relation of the assured to the chattels covered was that of mortgagor and mortgagee, and the insured wrote the policy with a knowledge of the relative rights and obligations of the assured with respect to- each other and to- the subject-matter o-f the insurance-.

The fact that the insurer issued the policy with both the mortgagor and mortgagee- as the original promisees distinguishes this appeal from most of the cases, and requires a brief statement of certain doctrines of law relative- to- fire insurance. An agreement of insurance against loss by fire is a mere personal contract of indemnity against a possible loss by fire of a valuable interest in a particular subject-matter. The policy is not incidental to or transferable with the subject-matter and does not run with it, unless by virtue of special and foreign stipulations which either have been interpolated in or added to the contract. May on Insurance (4th Ed.), sec. 6; Joyce on Insurance (2nd Ed.), secs. 23, 24.

So, a. mortgagee has no right to claim the benefit of a policy underwritten for the owner or mortgagor, unless by reason of so-me-express agreement to- that effect. Heller v. Marine Bank, 89 Md. 602, 621 . Such a special agreement is sometimes incorporated, in the body of the policy when issued, in the form of a direction to the insurer to- pay the loss to the mortgagee, or to him as his interest may appear (a); and often it is later endorsed on or affixed to the policy in the- form of a separate document or- rider (&). Rut whether this provision was made-, by incorporation or addition, at the inception of the policy, or was subsequently attached as a part- of the contract, with the assent of the insurer, the original contract remains as a contract of guaranty to- the original assured, and the property must he his at the time of the loss, and the mortgagee does not recover nor collect as the party insured, ¹⁷⁶ but as the payee, appointee, fiduciary, or assignee of a party who- has an insurable interest and a right to recover, which has been transferred in whole or in part to the assignee or fiduciary, payee, or' appointee, with the consent of the insurer.

So, if the loss be made payable to the mortgagee as his interest may appear, the general rule is that the mortgagee is only entitled to receive, to the extent of his mortgage claim, what may be found to be due the insured in case of loss, subject to all the defenses of the insurer as against the insured. As the rights of the mortgagee under such a policy are derivative, „the mortgagee has no greater rights than those of the. assured, whose breach of contract or wrongful conduct before the loss happens will be imputed to the mortgagee. .Consequently, whether the policy be invalid, or. the mortgagor forfeit his right to recover before the loss occurs, or fraudulently cause or procure the loss, the mortgagee1 is equally barred. The cases illustrating this principle are numerous (c). (c) Agricultural Ins.

Co. v. Hamilton, 82 Md. 88, 96-97 ; Johnston v. Phoenix Ins. Co., 39 Md. 233, 240 ; Citizens’ Fire Ins. Co. v. Doll, 35 Md. 89, 109 ; May on Insurance (4th Ed.), secs. 378, 379, 382. (b) Bowdoin & Brown v. Hammond, 79 Md. 173 ; Farmers’ Fire Ins.

Co. v. Baker, 94 Md. 545 . (a) Coates & Bro. v. Penn Fire Ins. Co., 58 Md. 172, 178 ; Hough, Clendening & Co. v. People’s Fire Ins. Co., 36 Md. 398, 431 ; Nat.

Fire Ins. Co. v. Crane, 16 Md. 260 -293, 294; Smith v. Germania Fire Ins. Co., 102 Or. 569 , annotated in 19 A. L. R. 1449-1454. These cases, however, are distinguishable from the one at bar, because here the mortgagee is not the assignee, payee, appointee, or fiduciary of the mortgagor, but is, with the mortgagor, an original and principal promisee under the insurance agreement.

In the instant case, the principals to the contract are the insurer and the mortgagor and mortgagee, which are the assured. The promise of the underwriter ran to the mortgagor and mortgagee, who were, to be paid any loss as their-interest might appear. Bakhaus v. Caledonian Ins. ¹⁷⁷ Co., 112 Md. 676, 691-693 ; Dakin v. Liverpool etc. Ins. Co., 77 N. Y. 600, 603 .

The mortgagor and mortgagee were liable for the payment of the special premium, and were bound by the warranties and conditions upon which the issuance of the policy was conditioned, and by the several stipulations on the part of the assured. In order better to understand the relative rights of the mortgagor and mortgagee under the indemnity contract, it will be necessary to consider if they each had insurable interests and in what manner their respective interests in the subject matter could be guaranteed against loss by fire. It was early recognized that a mortgagor has an interest in either realty or personalty which may be insured, and that the mortgagee may insure the same property to secure his lien. Further, the mortgagor and the mortgagee may insure their several interests in separate and distinct policies of insurance, by the same or different insurers, at one or different times; and, again, they may insure their several interests, as was done in the instant ease, by a single policy.

Allen v. Mut. Fire Ins. Co., 2 Md. 111, 123, 124 ; Washington Fire Ins. Co. v. Kelly, 32 Md. 421 ; Frontier Mortgage Corp. v. Heft, 146 Md. 1, 13 ; Bakhaus v. Caledonian Ins.

Co., 112 Md. 676, 691, 692 ; Royal Ins. Co. v. Stinson, 103 U. S. 25 , 26 L. Ed. 473 ; Carpenter v. Providence Washington Ins. Co., 16 Pet. 495 , 10 L. Ed. 1044 ; Columbian Ins. Co. v. Lawrence, 2 Pet. 25 , 7 L. Ed. 335 ; Honore v. Lamar Fire Ins.

Co., 51 Ill. 409 ; Hathaway v. Orient Ins. Co., 134 N. Y. 409 , 32 N. E. 40 ; Foster v. Equitable etc. Ins. Co., 2 Gray (Mass.), 216 ; Smith v. Union Ins. Co., 25 R. I. 260; Joyce on Insurance (2nd Ed.), secs. 1026, 1031, 1036, 1041; Tiffany on Real Property (2nd Ed.), yol. 3, sec. 617, p. 2457.

As was recently stated for this Court by Judge Digges in Frontier Mortgage Corp. v. Heft, 146 Md., at page 13 : “The mortgagor and mortgagee may each insure his own interest; the first insures the property, which he may do for its full value as the owner thereof; the latter, to the extent of his debt, and no farther. The first, notwithstanding the ¹⁷⁸ encumbrance on his property, is entitled to recover the full amount of his loss within the limits of the insurance; the latter, if the premises are destroyed by fire before the ex-tinguishment of the mortgage, has the right to be paid his debt by the insurers, if not more than the insurance; and'the underwriters, in such a case, become entitled to the debt, and can recover the same from the mortgagor and are subrogated to the rights of the mortgagee. The payment of the insurance does not discharge the mortgagor from the debt, but the insurers become his creditors and have a right to an assignment of the mortgage debt from the mortgagee. The mortgagor derives no benefit from a policy covering the interest of the mortgagee alone, but is bound to pay the mortgage debt to the insurers when they become his substituted creditors.” Washington Fire Ins.

Co. v. Kelly, 32 Md. 421, 441 ; Carpenter v. Providence Washington Ins. Co., 16 Pet. 501 ; Seidewitz v. Sun Life Ins. Co., 144 Md. 508, 514-516 . The appraisement under the policy in the pending appeal determined that the direct loss or damage by fire to the property covered by the policy on this record was $5,275, and this amount was payable to the assured as their interest mght appear.

Bakhaus v. Caledonian Ins. Co., 112 Md. 692, 693 . If the several interests of the assured had been covered by a separate similar'policy, for the same amount of liability, the application of the principles stated by the decisions quoted would have resulted in the insurer paying $5,275 to the mortgagor for his loss; and a like sum to the mortgagee, as the mortgage debt is greater than the loss by fire; and therefore the insurer would become entitled to enforce the amount of the debt paid against the mortgagor, and to the samfe extent would be subrogated to the mortgage lien of the mortgagee. But where- a single policy of insurance provides for the payment of the loss to the mortgagor and mortgagee as their several interests may be, the circuity of the method illustrated in the event of there being a separate contract of indemnity for the mortgagor and mortgagee' is avoided ¹⁷⁹ through the stipulation that the loss is payable