Court Opinion

ID: 7905038
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:59:33.145186+00
Date Added: 2024-06-11T16:32:23.451811
License: Public Domain

Dawson, J.
(dissenting) : With the general doctrine that an insurance policy is a personal contract, and that the insurance company is not bound where it has not contracted to be bound, nor beyond the scope of its obligation, I agree. My objection to this decision is that I think it overlooks the long road which the courts, even this court, have already traveled away from the primitive theory of personal contract touching the liability of insurance companies, in considering the interest of mortgagees of insured property and their assignees. In Loan Association v. Insurance Co., 74 Kan. 272, 86 Pac. 142, the owner of a house in Fort Scott mortgaged it to a loan association and took out a fire insurance policy to protect himself and *792the mortgagee. Later the mortgagor assigned his interest in the insurance policy to a trustee, the insurance company assenting. The property was injured by fire. The trustee declined to make proof of loss, and conveyed the property to the mortgagee. The insurance company resisted payment of insurance to the mortgagee, on one ground; among others, that there was a change of ownership to which it had not assented. This court said:
“The liability of the insurance company is in no way affected thereby; it remains the same as if the mortgagor had retained the title to the land. The deed was taken by the association simply as security for the debt of the mortgagor, and this was one step toward a realization thereof. . . . As to the claim that the loan association was bound by the mortgage clause to inform the insurance company of all changes in the ownership of the property, it is sufficient to say that in this state it has been held that the acquisition of the legal title to insured property by the mortgagee is not such a change of ownership as is contemplated by the provisions of this mortgage clause (Dodge v. Hamburg-Bremen Fire Ins. Co., 4 Kan. App. 415, 46 Pac. 25; Insurance Co. v. Ward, 50 Kan. 346, 31 Pac. 1079; Insurance Co v. Boardman, 58 Kan. 339, 49 Pac. 92), and, therefore, the omission is not material.” (pp. 277, 278.)
This court has held that the foreclosure and sale of insured property to the mortgagee is not such a sale or assignment as will avoid the insurance because of want of the express consent of the insurance company. The right of the mortgagee, whether before sale or after sale but before the expiration of the redemption period, has been declared to be “an equitable lien upon the proceeds of the policy” where a loss occurs. (Chipman v. Carrol, 53 Kan. 163, 35 Pac. 1109.)
Part of the syllabus in Bank v. Insurance Co., 91 Kan. 18, 137 Pac. 78, reads:
“A mortgage clause that the loss, if any, shall be payable to the mortgagee as his interest may appear, ‘subject, however, to all the terms and conditions of this policy,’ does not relieve the insurer from liability upon a policy containing a condition that it shall be avoided by proceedings to foreclose any mortgage on the property — the insuring of a mortgage lien being sufficient indication that the company must have contemplated a possible or probable foreclosure.” (Syl. ¶ 3.)
In Jones v. Insurance Co., 94 Kan. 235, 146 Pac. 414, it was held that the commencement of foreclosure proceedings did not avoid an insurance policy purchased by the mortgagor for his own benefit and that of his mortgagee. Mr. Justice Marshall, speaking for the court, said:
*793“Of what use is insurance held by a mortgagee on mortgaged property if the commencement of foreclosure proceedings vitiates the policy? An insurance policy held by a mortgagee, under a mortgage clause, as above set out, contemplates that there may he a foreclosure of the mortgage.” (p. 236.)
To that observation it could pertinently be added that the insurance company must have contemplated that somebody, not necessarily the mortgagee, would become the purchaser at the foreclosure sale.
In Whiting v. Burkhardt, 178 Mass. 535, 86 Am. St. Rep. 503, it was held that the assignment of a mortgage on property covered by insurance under a loss-payable clause, conveyed to the assignee an assignment of the proceeds of the insurance policy. It was held that such assignment was not a transfer of the policy in violation of the contract which stipulated that the policy should be void if assigned without the assent of the insurance company in writing, but merely an assignment of the right to receive the proceeds as security for the mortgage debt. One section of the syllabus reads:
“One .to whom an insurance policy is payable as “mortgagee, as his interest may appear,’ may assign to the assignee of the mortgage the right to receive on the same terms the proceeds of the policy.”
(See, also, Note, 25 L. R. A. 305; 19 R. C. L. 406-407.)
The purchaser of mortgaged property at a foreclosure sale, where the mortgagor has eighteen months to redeem, is in effect, during that redemption period, but a mere assignee or subrogee of the mortgagee, and as such he is equitably entitled to everything the original mortgagee would get. It is not a matter of substantial concern to the insurance company who may be the purchaser at the foreclosure sale, at least where there is no change of possession of the property. The hazard that the mortgagor might default and that the insured property might be subjected to foreclosure sale was one which the insurance company was bound to take into account when it consented to carry the risk for the mortgagee “as his interest might appear.”
I therefore dissent.