Washington Fire Insurance v. Kelly

Stewart, J., delivered the opinion of the Court. The insurance companies in these cases, which have been brought up in the same record and argued together, insist that they are not respsonsible for the loss occasioned by the fire, because, as they allege, certain stipulations and conditions of the respective policies have not been observed on the part of the insured, although they concede that all other provisions have been complied with to entitle the insured to recover. Under these circumstances, the determination of the questions involved, depends upon the construction of the clause in the policy of the Washington Eire Insurance Company, and the conditions of the policy, and the conditions in the policy of the Atlantic Fire and Marine Insurance Company. The clause is to the following effect: “ If the property shall be sold or conveyed, or if this policy shall be assigned, without the consent of the company obtained in writing thereon, then this policy shall be null and void.” The conditions of the same policy are of the following character. “If the interest in property to be insured be a ‘leasehold’ interest, or other interest not absolute, it must be so represented to the company, and expressed in the policy in writing, otherwise the insurance shall be void.” “ Policies of insurance subscribed by the company shall not be assignable without the consent of the company, expressed by endorsement made thereon; in case of assignment without such consent, whether of the whole policy or of any interest ⁴³⁵ in it, the liability of the company, in virtue of such policy, shall thereafter cease.” The Atlantic Fire and Marine Insurance Company has this condition, to wit: • “ Every policy of insurance made by this company shall be sealed with its seal, signed by the President, and attested by the Secretary • and the person for whose interest the insurance is made must be declared and named therein; nor can any policy or interest therein be assigned but by the consent of the company, expressed by an endorsement made thereon.” The policy of insurance in this case, with all of its provisions and conditions, is the written contract between the insurer and the insured, and, as much of the argument of the case was directed to a discussion of the rule to be applied in the interpretation of such a contract, we may premise that the same principles of construction, govern the contract of insurance, as other written contracts.

In its interpretation, as in all other contracts, the intention of the contracting parties is to be regarded, and where that can be ascertained it must govern and control their rights under it, if not in conflict with the law. Maryland Ins. Co. vs. Bossiere, 9 G. & J., 155 . The provision in the policy of the Washington Fire Insurance Company against the sale or conveyance of the property insured, and against the assignment of the policy without the consent of the insurers, as it imposes a restriction upon the right of disposing of property, should be construed, as any other contract with like provision, with strictness; and nothing less than the absolute sale or conveyance of the property, with all the usual legal ingredients to constitute the transaction as such, or similar complete assignment of the policy, can be considered as sufficient to avoid the policy on' that account.

Lazarus vs. Commonwealth Ins. Co., 5 Pick., 76 to 82. There is no doubt that an insurance against fire without an interest in the subject-matter insured is a wagering contract, which the law does not sanction; and it is, therefore, neces ⁴³⁶ sary that the insured should have an interest in the property insured, not only at the time. of the insurance, but when the loss by fire occurs. If the insured sell the property, and transfer all his interest therein, or assign all interest in the policy, before the loss happens, he cannot recover by the principle of the common law.

This provision in the policy is but the incorporation of this legal principle therein. The insurance of buildings against loss by fire is a contract with the owner (or any person having an interest in their preservation,) to indemnify against any loss sustained by him by fire; and if the insured has sold, conveyed or assigned all his interest in the same before the fire, he can, in fact, sustain no damage, and the insurers are under no obligation to pay any one. Angell on Insurance, 230, 231. According to the tenor and effect of the language in this proviso, it is not any change or modification in the title to the property that will avoid the policy, or any reduction of the interest from an absolute to a qualified interest, because the reduced interest is insurable.

The proviso is restrictive of the sale or conveyance of the property insured, and where the sale or conveyance is 1’elied upon by the insurers, to prevent the recovery for any loss by fire, the sale or conveyance must be made out full and complete. To constitute a sale, within the meaning and terms of the proviso, the right to the property sold and to the possession thereof, must pass from the vendor to the vendee. The mere contract for the sale or conveyance, not divesting the title of the vendor and vesting the same in the vendee, is not a breach of the proviso. A contract to convey the buildings insured at a future day, on payment of the purchase money, and between the time of contract and its consummation, they are destroyed by fire, the vendor being in possession, it is not such an alienation as vacates the policy.

Angell on Insurance, sec. 206. The contract of the 11th of February, 1868, between Beekmnn and Reeder and Charles W. Budd, was an executory con ⁴³⁷ tract, to sell and convey the property insured and the lots upon which the buildings stood, and certainly was not such sale or conveyance as forfeited, the rights of the insured under the provisions of the policy. There is no doubt, that the insured as the vendors of the property, before the actual conveyance thereof, held an insurable interest therein. 3 Kent’s Com., 489, n. 1. Besides the clause in this policy against its assignment, it is one of the conditions annexed to the same, that it shall not be assignable nor any interest in it.

Fire policies have never been regarded as transferable, without the consent of the company. An gell on Insurance, sec. 11. But where there is no restriction, the policy was assignable in equity, like any other chose in action; though to render the assignment of any value to the assignee, an interest in the subject-matter of the insurance must be assigned also, for the assignment only covers such interest as the insured had at the time of the assignment. This restriction applies only to transfers before a loss happens. 3 Kent’s Comm., 496.

The assignment after the loss, stands on the same footing as the assignment of a debt or right to receive a sum of money actually due. Angell on Insurance, sec. 222. The agreement as to an assignment of the policies, conceding there was such an agreement between the parties, as understood by Mr. Clark, and that such agreement by parol could operate where there was a written contract between the parties, can occupy no higher ground than the agreement for the sale of the property. It did not amount to an assignment of the policy, or the assignment of any interest therein, and was simply a contract to assign; but the insured, in fact, held the policy and made no assignment thereof.

They held the possession of the property as well as the policy of insurance, notwithstanding the contract to sell and convey the same. The condition in the policy of the Atlantic Fire and Marine Insurance Company, restrictive of any assignment of that policy or any interest therein, is of like purport and to the ⁴³⁸ same effect as the clause and condition in the policy of the Washington Fire Insurance Company, and the same construction is therefore applicable to that policy. In the condition, requiring the interest in property to be insured, if a leasehold or other interest not absolute, to be so represented to the company and^expressed in the policy, the term leasehold ex m termini imports a qualified interest, the other interest, not absolute, although not so particularly described by the general term used, must be understood as referring to some similarly qualified interest, as the “ leasehold.” The language employed in the condition recognizes the distinction between leasehold or other qualified interests, as contradistinguished from those that are absolute or unlimited. The “leasehold” is carved out of the fee-simple, which remains vested in another, who holds the absolute estate, and so of any other inferior interest less than the absolute.

The term “ not absolute ” cannot mean a fee-simple interest in the property. The appellants whilst they concede that the title of the insured, was, in all other respects,.perfect, yet insist that the interest of the insured in the property, was not absolute as contemplated by the terms of the condition, because of the existence of the mortgages thereon. The “ leasehold ” from its well known signification and its immediate connection with the other interest not absolute, necessarily is used as descriptive of the meaning and extent of the other. It is an interest less than the fee-simple, so is an estate for life, for a term of years or at will.

By a lease one grants an interest less than his own, and the lease is properly a conveyance of lands, tenements or hereditaments, made for life, for years or at will, but always for a less estate than the lessor has in the premises. When the owner in fee, grants a lease, he still retains his absolute interest. 2 Blackstone’s Comm., 287. .To inferior and limited interests, the general language of the condition is applicable, and the mortgages upon the prop ⁴³⁹ erty must have the effect to reduce the estate of the mortgagor to some such qualified interest, to bring it within the operation of the condition. The estate in lands, tenements and hereditaments, is the interest the tenant has in them, and to ascertain precisely the character of that interest, the estate must be considered with regard to the quantity of interest — the time at which that quantity of interest is to be enjoyed and the number of the tenants; the quantity of the interest is to be measured by its duration and extent; thus, either his right of possession is to subsist for an uncertain period, during his own life or that of another person, to determine at his own decease, or to remain to his descendants after him; or it is circumscribed within a certain number of years, months or days; or it is infinite and unlimited, being vested in him and his representatives forever. The owner in fee-simple holds the lands, &c., to him and his heirs forever, generally and absolutely, and he has absolutum et directum dominium, and therefore is said to be seized thereof in dominico suo, in his own demesne.

Estates or interests may be held as a security for the payment of a debt by mortgage or dead pledge, mortuum vadium, 2 Black. Com., ch. 7, 104, 107, 157, and the mortgage upon it does not affect either the quantity of character of the estate, but simply holds it to secure the debt. Mortgages are now universally regarded, in Courts of Equity, as mere securities for the payment of money, chattel interests or choses in action; the debt being considered the principal, and the mortgage as accessory and appertenant thereto, and before foreclosure belongs to the executor, and though the technical fee may descend to the heir, he takes it in trust for the personal representative. The mortgagor is the substantial owner of the property, though the legal estate is in the mortgagee, and he can transfer or vest his interest at his own pleasure, so long as the right of redemption exists, and the interest of the mortgagor is also liable to attachment and execution. ⁴⁴⁰ The mortgagee has an interest in the subject-matter of the mortgage not absolute, but commensurate with the object contemplated to be attained' by it, as a security for the payment of the debt due from the mortgagor to the mortgagee, and his' claim does not vest in 'him the estate in the lands mortgaged, but follows the nature of the debt, and as a chattel interest belongs to his representatives in case of his death.

The equity of redemption in the mortgagor is not only a subsisting estate and interest in the land in the hands of the heirs, devisees, assignees and representatives of the mortgagor, but of any other persons who have acquired any interest in the lands, by operation of law or otherwise, in privity of title. Courts of Equity, though a mortgage be forfeited, and the estate absolutely vested in the mortgagee, at common law, yet they will allow the mortgagor, at any reasonable time, to redeem his estate. So long as the estate can be shewn to have been treated as a pledge, there is a recognition of the mortgagor’s title. Nor will they permit a conveyance made to secure a debt, to operate for any other purpose than to secure the debt; the conveyance will be considered as merely holding-the property as pledged, and no agreement in a mortgage will be suffered to make the property irredeemable.

Ford vs. Philpot, 5 H. & J., 312 ; Evans vs. Merriken, 8 G. & J., 39 ; Chase vs. Lockerman, 11 G. & J., 185 ; G. C. Coal Co. vs. Detmold, 1 Md., 237; Allen vs. Mutual Ins. Co., 2 Md., 111 ; Timons and Wife vs. Harrison, 19 Md., 296 ; Code, Art. 64, sec. 20; Story’s Eq. Juris., secs. 1015 to 1023; 4 Kent’s Com., 156 to 166; 2 Black. Comm., 159, and n. 8.

Notwithstanding the mortgages upon the property, the mortgagors held the equity of redemption, the real and beneficial estate, equivalent to the fee simple at law, descendible by inheritance, devisable by will, and alienable by deed, as any other absolute estate of inheritance. To all intents and purposes they held the absolute interest in the property insured; the mortgages were but temporary and ⁴⁴¹ incidental incumbrances, and could not operate to render their interest a limited one. Upon no sound principle of construction, relating to the nature and qualities of estates, can the interests of the mortgagors, as holders of the equitable fee-simple, be divested, or reduced to a qualified or inferior estate. They were not within the terms of the condition, and were not required to communicate to the insurers the fact that the property was subject to the mortgages. *Lf the insurers designed to require a disclosure of all incumbrances upon property insured, they have not used apt and sufficient language to accomplish that object.

To give to the terms of the condition the force claimed by the insurers, would be to substitute another and different contract for the parties, and such construction can find no warrant or authority in the terms of the condition as they stand in the policy. According to these views, it follows that there was no error below in granting the appellee’s prayers, and refusing the first, fifth, sixth and seventh prayers of the appellants. The agreement of the 31th of February, 1868, between Beekman and Reeder and Budd, was an executory contract between the parties; and under that contract, the insured were not divested of their interest in the property, and were entitled to be indemnified by the insurers, according to the contracts of insurance, for the loss they sustained by the fire. To constitute an insurable interest, it is not necessary that the insured shall, in all cases, have the absolute and unqualified interest in the property insured — a trustee, mortgagee, a reversioner, a factor, an agent, with the custody of goods to be sold on commission, may insure. 2 Marshall on Ins., 64, ch. 2, p. 789.

The mortgagor and mortgagee may each insure his own j interest — the first insures the property, which he may do for ? its full value as the owner thereof; the latter, to the extent j of his debt, and no farther. The first, notwithstanding the' ⁴⁴² incumbrance 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 extinguishment 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 case, become entitled to the debt, and can recover the same from the mortgagor, and are subrogated to the rights of the mortgagee. 2 Marshall on Ins., 64, ch. 2, p. 789. The payment of the insurance does not discharge the mortgagor from the debt, but the insurers become his creditors, and have the right to an assignment of the debt from the mortgagee. There is no privity in law or fact betw'een the mortgagor and the mortgagee in the contract of insurance, and the mortgagor can take no advantage of the policy of the mortgagee for his debt, for he has no interest whatever therein, but is bound to pay the debt to the insurers where they become his substituted creditors.

Angell on Ins., 59. In King vs. State Ins. Co., 7 Cushing, 1 , referred to in 3 Kent’s Com., 489, n. 6, it was held, (Shaw, C. J., giving the opinion,) that the insurers could not insist upon an assignment of the mortgagee’s interest as a preliminary condition to the payment of a loss, and that it was not inequitable to allow the mortgagee to recover, both" from the underwriters and the mortgagor. But the contract of insurance is strictly a contract of indemnity, and the mortgagee is not entitled to recover from the insurers the value of the property lost, and his whole debt besides, from the mortgagor. • When his debt is paid, and he is indemnified, it seems more in consonance with the just principle of indemnity, that the insurers should have the right to be substituted in his place and allowed to collect the debt from the mortgagor.

The policy of insurance, from its legal effect, according to judicial decision, must receive such reasonable construction as imports with its true character as a contract of indemnity. ⁴⁴³ Angell on Insurance, 103, note 1, referring to an opinion of Gibson, C. J. The effect of the destruction of the buildings by fire, upon the contract between Beekman and Reeder and Budd, could not operate to change the contract between the insurers and the insured. The fact of the insured having contracted to sell the property, and received a part of the purchase money, ought not to deprive them of their indemnity, unless it had been so stipulated by appropriate terms. If the insured had made an absolute sale of part of the property insured, that would have avoided the policy pro tanto — Angell on Ins., 196 — but as that was only a contract to sell the property, the insured are entitled to full indemnity, otherwise, the contract of insurance is not certified. We think the second prayer of the appellants was properly refused.

The third and fourth prayers of the appellants were properly refused. The insured is entitled to be indemnified for the loss of the buildings by fire, to the extent of his insurance, and there is no reason to reduce the amount because a contract had been made for their sale. The rule of subrogation is thus stated in 2 Phillips on Ins., 282: “ Where the insurable interest consists of a debt due to the assured, the assured is bound to assign to the underwriters the debt or his insurable interest, whatever it may be, in case of his being paid a total loss.” This equitable principle cannot be applied here, where no debt has been insured, paid by the insurers, and to be assigned, and the insured have not been paid to the full limit of their loss. The whole of the insurance, according to the admitted facts, amounted to some $560,000, and the buildings destroyed -were worth $5100,000.

The fact that the buildings, with the lots upon which they stood, were under contract to be sold at the time of the fire, does not deprive the insurers of any of their rights, or increase their responsibility, nor does it confer upon the insured any additional advantage growing out of their contract with the insurers. ⁴⁴⁴ (Decided 27th May, 1870.) The insurers cannot be benefitted by a subrogation to the rights of the insured without affecting the claim of the insured to be fully indemnified for their loss. The equitable principle of subrogation cannot be applied where it conflicts with that indemnity to which the insured is entitled under the contract of insurance. The destruction of the buildings by the fire is an absolute loss, which the insurers are obliged to meet, according to the terms of the policies of insurance, applied to the admitted facts, and there is no just ground upon which they can be relieved by any subrogation to the rights of the insured under the circumstances of this case. Judgment affirmed in both eases.

Miller, J., delivered the following opinion: The policy on which this action was brought was issued by the Washington Fire Insurance Company, of Baltimore, to Beekman and Reeder, insuring them for one year from the 14th of May, 1867, against loss by fire to the amount of $2,500, “ on the three-story granite and brick building,” situated in the city of New York, known as and occupied by “ Barnum’s Museum.” The building was destroyed by fire on the 2d of March, 1868. The loss was total, and it is admitted the insurers are liable for the full amount of the insurance unless the legal defences relied on are sustained. These have been argued with great ability by counsel on both sides, and present questions of much interest, some of which, if not of entire novelty elsewhere, have not been settled by any .express adjudication in this State. It has become the duty of this Court now to decide them; and, with the permission of my brothers who heard the case with me, I will express my views in a separate opinion, and shall consider the several controverted points in the order in which they were discussed at bar. ⁴⁴⁵ 1st.

Beekman and Reeder were owners of the ground, as well as of the insured buildings, subject to incumbrances by way of mortgage, and the appellant insists that, as the assured held only an equity of redemption, and made no representation that such was the character of their interest, and as no such statement was expressed in it, the policy never attached, under the second condition of insurance annexed to and made part of the contract. In that condition there is, among others, a provision that “ if the interest in property to be insured be a leasehold interest, or other interest not absolute, it must be so represented to the company, and expressed in the policy in writing, or otherwise the insurance shall be void.” I do not recognize, as sound, that principle or rule of interpretation, to which it is to be regretted some decisions have given countenance, that a clause like this is to be practically ignored, or construed most strongly against the underwriter, because found in the printed conditions annexed to the policy. The introduction into such instruments of numerous conditions and qualifications, often difficult of comprehension and fruitful of litigation, may be a practice to be deprecated; yet they are nevertheless parts of a contract binding upon both parties, and policies containing them must be construed by the same rules as other contracts. 7 G. & J., 293 ; 9 G. & J., 121 . The evil, if such it be, must find its correction in the refusal of parties to accept policies clogged with these conditions.

Courts of Justice, whose duty it is to construe, cannot ignore their existence or refuse to give to the terms they contain their natural and fair import, because of any hardship that may thereby be visited upon one of the parties. The law requires the’ Court to assume that parties understand, the contract they make, and that every intelligible condition, clause and word used in it was inserted by design, has some meaning, and was intended to accomplish some purpose. To the clause now before the Court, must be applied the familiar rules of construction, all of which are subordinate to the leading principle that the intention of the parties must prevail, ⁴⁴⁶ unless inconsistent with some rule of law. The Court must give to the lauguage used its just sense, and search for the precise meaning and one requisite to give due and fair effect to the contract, without adopting cither the rule of a rigid or of an indulgent construction. 17 Md., 497 .

Claims requiring a statement of the interest of the assured, have long been used in insurance policies. They were doubtless originally directed against wagering policies, and were intended to protect underwriters from paying losses to those who, in fact, had not sustained them, who really had nothing at hazard, and whose interest, therefore, was that the event insured against should happen. Apart from any statutory enactment, as in England, it has long been held in this country, that the assured must have some insurable interest in the property, and that the contract of insurance is strictly a contract of indemnity based upon the utmost good faith and fair dealing. And apart from any clause of this description, it has been decided by the Supreme Court of the United States in several cases, that if, in a proposal for insurance, there be any misrepresentation or concealment of his interest by the assured, material to the risk, and which, if disclosed, would have enhanced the premium, it avoids the policy for the reasons so forcibly stated by Chief Justice Marshall, in 2 Peters, 49; “ The contract for insurance is one in which the underwriters generally act on the representation of the assured ; and that representation ought consequently to be fair, and to omit nothing which it is material for the underwriters to know.

It may not be necessary that the person requiring insurance should state every incumbrance on his property which it might be required of him to state, if it was offered for sale; but fair dealing requires that he should state every thing which might influence the mind of the underwriter in forming or declining the contract. A building held under a lease for years, about to expire, might be generally spoken of as the building of the tenant, but no underwriter would be willing to insure it as if it was his, and an offer for insurance, ⁴⁴⁷ stating it to belong to him, would be a gross imposition. Generally speaking, insurances against fire are made in the confidence that the insured will use all the precautions to avoid the calamity insured against, which would be suggested by bis interest. The extent of this interest must always influence the underwriter in taking or rejecting the risk, and estimating the premium.

So far as it may influence him in these respects, it ought to be communicated to him. Underwriters do not rely so much upon the principles as on the interest of the assured; and it would seem, therefore, always to be material that they should know how far this interest is engaged in guarding the property from loss.” The Courts of most of the States have, however, held that the nature of the interest of the assured, in cases of ordinary contracts of insurance, not mutual, but made by a company insuring on its own account, is immaterial to the risk, and an omission to state the nature and extent of his interest where no inquiry has been made on the subject, and it is not exacted by conditions, will not avoid the policy, unless the failure so to state would operate as an actual fraud, (2 American Lead. Cases, 638 to 6 42,) and this must be now regarded as the settled law of this State. 14 Md., 298 ; 18