Court Opinion

ID: 3583325
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:33:58.619844+00
Date Added: 2024-06-11T13:38:12.205252
License: Public Domain

The plaintiff, Kernochan, being the owner of the premises, Nos. 80 Cliff-street and 323 Pearl-street, in the city of New-York, insured them against fire in the office of the defendants, in his own name as owner. Having subsequently made a sale to the Messrs. Cooledge, taking back a mortgage for the purchase money, he informed the insurance company of this change in his relation to the property, who, instead of executing new papers, continued the old policy in force, merely interlining the word "mortgagee" and altering the form of the subsequent premium receipts from "Joseph Kernochan" to "Joseph Kernochan, mortgagee." And in this position the matter stood when the fire took place, on which the present action is founded.
The company, in addition to some formal objections, which I shall not discuss, to the plaintiff's recovery, take the position in their answer (and as matter of fact have proved it fully), that the lots, with the buildings burnt, are still *Page 438 
ample security; that they are worth several thousand dollars more than the balance due on the mortgage; and that the mortgagee, therefore, the only person insured, not having been damnified by the fire, has no ground of complaint, and of consequence no cause of action.
In their correspondence, however, with the plaintiff's attorney, and which it will be observed was given in evidence by themselves, the company presented their case in a somewhat different form. They offered "to pay the damage to the building by fire, being $3,192, with interest and costs," but accompanied the offer with a demand for an assignment, by way of subrogation, of "a sufficient portion of the mortgage" to enable them to reimburse themselves; or, if preferred, an assignment of the whole mortgage, they paying in that case the whole amount, about $15,000 remaining due upon it; a very equitable proposition, it may be, if no other parties then Mr. Kernochan were entitled to be consulted. But the Cooledges, it appeared, had an interest in the question. They had paid the premiums, and "it was the agreement, as Cooledge testifies, with Mr. Kernochan that he should keep the premises insured and we should pay the premium and we invariably paid the premiums at the time of the annual interest, up to and including May, 1853," the year in which the fire took place. The Cooledges, therefore, insisted that the insurance having been effected for their benefit and at their expense, the insurance money should be applied pro tanto to the discharge of their debt; and the counsel of Mr. Kernochan accordingly, in his reply to the company's proposition, declared that his client would accept the proffered tender, but would make no assignment of the bond and mortgage, or any part of it, by way of subrogation or otherwise.
The inquiry then is, and it is one of great practical importance in a community where the custom of taking policies as collateral to mortgages is almost universal, what are the relative rights of mortgagors and insurance companies in *Page 439 
these cases? Insurers are undoubtedly entitled to know not only what they insure but who they insure, and the character and extent of the risk. A. cannot in his own name, without communicating the fact, take a policy for B., or if he do and a loss happen, A. can recover nothing, because A., although insured, has lost nothing, and B. can recover nothing because B, although a loser, was not insured. Here, however the insurance was in the name, not of Kernochan, but of Kernochan "mortgagee." The company, therefore, were informed that there was a "mortgagor" in the case and that they had only to ask, as they probably did, in order to know who he was and what were his rights in the subject insured. Indeed, without such inquiry, they knew, as their president testified, that "as a general rule it is the practice for the mortgagors to pay the premium of mortgaged property when the policy accompanies the mortgage." He, their own witness, even went further: "I never knew," says he, "of an instance in which he, the mortgagor, does not either pay the premium or it is collected on foreclosure." When, therefore, Mr. Kernochan said to the company I am insuring no longer as owner but as mortgagee, he in effect told them that he was insuring for the mortgagor and that the mortgagor paid the premium, he holding the policy merely as collateral security for the debt.
How then can it be said, and the defendants' whole case rests upon that averment, that "it was proved on the trial that the defendants knew nothing of the plaintiff's agreement to keep the Cooledges insured." Does the mere statement of the president, that "we, the company, were never prior to the fire notified of that agreement," constitute such proof? A formal notification, perhaps, and that probably was all the witness meant, was not given. To an officer knowing the general usage that mortgagors in such cases almost invariably pay the premium, no literal notice was deemed necessary. The fact of the mortgage, which was distinctly communicated, carried with it the other fact as a *Page 440 
known ordinary incident; and he was bound to assume, in the absence of any statement to the contrary, that the insurance in this instance was effected with the ordinary understanding.
The president, it is true, endeavors, in his testimony, to take this case out of what he admits to be the "general rule." In his testimony he says: "After some conversation, I told him (Mr. Kernochan), it might be worth a little less to insure him as mortgagee, but we would not insure the owner at that rate." But the accuracy of his recollection is strongly impeached, if not overthrown. The receipts produced show, that Kernochan as owner, and Kernochan as mortgagee, was in fact insured at precisely the same rate, to wit, $40.50. And the witness himself adds, and the testimony of several others is to the same purport, that "there is no difference made in the rates of insurance between the insurance for owner and mortgagee." Is it likely, then, if we are to balance probabilities, that such a conversation as the one stated took place? Or, is it not much more consistent with probability to suppose, that the president, in his recollection, is mistaken? At all events, assuming, as I presume we must, that there was evidence both ways, it was proper for the judge, as he did, to submit it to the jury to say, "whether the defendants made the insurance under the understanding that the mortgagors paid the premium, and that the insurance was procured for their benefit as well as that of the plaintiff," or not. The judge even went further, and told the jury that if the alleged conversation took place, and the insurance was effected on that footing, "the plaintiff could not recover." In finding for the plaintiff, therefore, the jury must be intended to have declared that there was, in this case, no such special understanding, and no departure from the general practice. The verdict establishes, and such I think, were we at liberty on this appeal to review it, is the clear weight of evidence, the following facts: *Page 441 
First. That by agreement between the mortgagor and mortgagee, the latter was to effect the insurance for the benefit of both, according to their respective interests, and at the expense of the former.
Second. That the insurance company knew of this arrangement, and took an equivalent premium and were in no respect defrauded or misled.
Having, then, knowingly received the mortgagor's premium, the company are bound to make good the mortgagor's loss. They have no right to subrogation either as a condition precedent to their obligation to pay, or as a condition subsequent to actual payment. Such a right can only exist where equity demands its exercise. To allow it in the present case would, in effect, be to compel the insured to pay a premium without insurance, and to permit the insurer to exact a premium without risk.
Where a mortgagee insures solely for his own safety, and entirely at his own cost, a different question may arise. Yet even there the sufficiency of the remaining security would be no defence. The mortgagee would have a right to say: "I chose to have additional security and paid you for it, when you have fulfilled your obligation to me by paying the loss against which you insured, it will be time enough for you to claim a subrogation to my remedy against my debtor." Such was the case ofKing v. The State Mutual Fire Insurance Company (7 Cush.,
1), which proceeded upon the assumption, as stated by Chief Justice SHAW, "that the plaintiff made the insurance, which was of his interest, in his own name and for his own benefit, not describing himself as mortgagee, and paid the premium out of his own funds," and that "his interest, in fact, was that of a mortgagee." The company, as a condition, insisted upon an assignment of the mortgage, and on its refusal declined to pay the loss. Judgment was rendered against them.
In delivering the opinion of the court, although not necessary to a decision, the Chief Justice went even further and *Page 442 
contended that where the mortgagee himself pays the premium, he has a right both to the insurance money and to the mortgage debt; that there is no subrogation in such case, either before or after payment in favor of the company, and no defence of part payment in favor of the mortgagor, for the reason that neither the one in paying the loss nor the other in paying the debt does any more than each respectively contracted to do, and was paid for doing. This view, however, it will be seen, ignores the principle of public policy that no man should be allowed to bargain for an advantage to arise from the destruction of life or property, in other words, to lay a wager that a particular person will die or a particular property be burnt within a given period. We regard the contract of insurance as one purely of indemnity. Should it be said that insurance companies will receive premiums without a corresponding risk, the answer is that such suggestions may be safely left to the interest of the parties, who will soon adjust their premiums to the diminished losses.
The judgment of the Superior Court in favor of the plaintiff should be affirmed.
Judgment affirmed.