CHAPTER IV

SUBROGATION OF FIRE INSURANCE COMPANY TO RIGHTS OF A MORTGAGEE

Section

1. Introduction.

2. Operation of the Rule.

SECTION 1.-INTRODUCTION

In studying the law of suretyship, we have seen that a surety, having paid to the creditor the amount of the indebtedness of his principal to that creditor, is said to be "subrogated" to the rights of the creditor against the principal. Such a doctrine is found also in the law of fire insurance. Here there are cases in which the fire insurance company, having paid the mortgagee the amount of the mortgagee's loss, is "subrogated" to the rights of the mortgagee against the mortgagor. There are other cases in which there is no such subrogation after payment of the mortgagee by the insurance company. Whether there is such subrogation, depends upon the terms of the policy.

SECTION 2.-OPERATION OF THE RULE

PALMER v. NIAGARA FIRE INS. CO.

(Court of Errors and Appeals of New Jersey, 1917. 87 N. J. Eq. 347, 100 A. 225. L. R. A. 1917D, 871.)

Bill for injunction by Florence E. Palmer against the Niagara Fire Insurance Company. Decree for complainant, and defendant appeals. MINTURN, J. The complainant was owner of real estate in Elizabeth. On March 11, 1911, she executed a bond and mortgage thereon, to John A. McFadden, as guardian, to secure payment of $3,500. She procured insurance on the property from three companies, aggregating $14,500, among which was a policy from the Niagara Fire Insurance Company for $3,500. This was the only policy containing the usual standard mortgage clause, with a right of subrogation upon payment of the amount due to the mortgagee. The latter foreclosed his mortgage, and on December 18, 1913, obtained a decree for $3,225, with inA fire occurred on December 20, 1912, completely destroying the insured premises. Suit at law upon the other policies required the Scottish Insurance Company to pay complainant $2,460 for its proportion of the loss, and the Northern Insurance Company to pay $2,150 for its share.

The proportion which the Niágara Company would have had to pay to the complainant, under a policy devoid of the mortgagee clause, as its

contribution to the loss was conceded to be $1,388.16. Having paid the mortgagee his full claim of $3,416.67 it now insists that so far as this complainant is concerned, it has overpaid, upon the policy, the difference between its proportionate share of liability, under a policy devoid of the mortgagee clause, and its actual payment to the mortgagee, viz. $2,028.51, and to that extent it claims the right to exercise and enforce its privilege of subrogation. To that end it obtained from the mortgagee an assignment of his securities and final decree, and an agreement of subrogation, and in the attempt to enforce its claim is opposed by the complainant, who filed this bill to enjoin the insurance company from enforcing its demand.

The bill also seeks to compel the surrender of the bond and mortgage for cancellation, as well as to compel the company to pay to the complainant the difference between the face of the policy and the amount paid to the mortgagee. The insurance was effected by the complainant, at her own expense, payable to her subject to the usual mortgage clause. It must be obvious, that the claim of the complainant, if acceded to, would result in her enrichment by this investment, over and above her loss, to the extent of $2,770.85; and, since fire insurance is conceded to be a method of indemnity for loss, and not a speculation for gain or gamble, the effort to reconcile these conflicting claims upon equitable principles must be pursued with that fundamental doctrine in mind. * *

* 串

The rights of the mortgagee and the status of the mortgagor under this policy were radically different, so far as the liability of the company is concerned. In the former case its liability was coextensive with the amount of the mortgage, where the policy was sufficiently large to cover it, not exceeding the liability of the company to the mortgagor. * * * In the latter instance the extent of the company's liability depended upon the extent to which all coinsurers, under the clause for that purpose, were legally obligated to contribute to the loss. * This latter amount having been determined, the liability of the company to the mortgagor must be accordingly limited, regardless of what might be its liability to the mortgagce. The result is that the limit of the complainant's recovery upon the policy, in a court of law, would be the company's pro rata share of the total loss, based upon the coinsurance clause of the policy. It is apparent, therefore, that the two liabilities inherent in the policy are totally distinct and independent, and productive of different results in each instance. * * *

The rights of the mortgagor must be determined, not by the claim of the mortgagee upon the policy, but by the legal right accorded to the mortgagor; and upon that principle only can the liability of the company in this instance be predicated.

The rights of the company to be subrogated to the rights of the mortgagee, under the provisions of the policy being manifest * ** the equitable doctrine of subrogation must be so effectuated as to do equity between the parties according to their legal rights, as herein indicated, by crediting upon the decree the sum which the complainant would be entitled to receive from the company, under the coinsurance provision of the policy, with interest.

To that extent the decree appealed from will be modified, and in other respects reversed.

SECTION. I.-INSURANCE AGAINST LOSS THROUGH INJURIES TO EMPLOYÉS

EBERLEIN v. FIDELITY & DEPOSIT CO. OF MARYLAND.

(Supreme Court of Wisconsin, 1916. 164 Wis. 242, 159 N. W. 553.)

Action to recover on a policy of insurance by the defendant to the Wisconsin Fruit Package Company, to indemnify it from loss resulting from injuries to its employés. By the terms of the policy, defendant agreed to indemnify "the assured against loss from the liability imposed by law on account of bodily injuries or death" suffered by employés as the result of the negligence of the assured, and contained a clause providing that no action should be brought under it unless after a final judgment rendered in a suit by the employé and within two years from the date of the judgment "for a loss that the assured had actually sustained by the assured's payment in money" of a final judgment rendered after trial in an action against the assured for damages on account of the negligence of the assured. Castonguay, an employé, being injured while at work, brought action against the assured. Defendant took entire charge of that action. After the action was commenced, the assured was forced into bankruptcy by its creditors. Later, Castonguay secured judgment against assured. The stockholders of the assured held a meeting and authorized the treasurer of assured to take steps to secure funds to pay the judgment. The treasurer of the corporation, Schmidt, went with plaintiff (who was plaintiff's attorney in the Castonguay case) to the German-American National Bank. Schmidt gave the bank the company's note, indorsed by himself and Eberlein, for the amount of Castonguay's judgment, the cashier handed the money to Schmidt, who handed it to Eberlein, who at once delivered a satisfaction of the Castonguay judgment to Schmidt, and deposited the whole sum in the same bank to his own credit by virtue of an agreement with Castonguay that he (Eberlein) was to retain the money to secure his. indorsement of the note, and that Castonguay was not to receive any of it unless Eberlein was successful in the present action. It was understood at the time that the bankrupt had no funds; that Eberlein was the responsible man, to whom the bank would have to look for pay; and that suit was to be brought against defendant on the policy, and when the amount was collected in that suit it was to be used to pay the note. On the same day, the corporation assigned to Eberlein any claim it might have under this policy, and Eberlein thereafter brought this action.

WINSLOW, C. J. * * It is settled in this state, in accord with the weight of authority elsewhere, that a policy of insurance, like the one before us, is a contract to indemnify the assured alone, that there is no privity of contract between the insurer and the injured employé, and that payment of the loss by the assured is a condition precedent to the right to maintain an action on the policy of the assured. Stenbom v. Brown-Corliss Co., 137 Wis. 564, 119 N. W. 308, 20 L. R. A. (N. S.) 956, and cases cited in the opinion in that case. In the Stenbom Case it was also held that, under a policy which contracted to reimburse the assured for a loss "actually sustained and paid" by him, the payment may be made otherwise than in money, provided the same is made and accepted in good faith and there is a bona fide settlement and satisfaction of the judgment secured by the injured employé. In the present case the condition of the policy provides that there must be "payment in money" by the assured before there arises liability upon the policy. It may well be that this provision could logically take the case out of the last-named rule. We do not find it necessary, however, to decide that question.

Assuming that the words used in the present policy are not stronger than those used in the Stenbom policy, we are well convinced that there was no payment shown here. True, the corporation gave an absolute note to the bank, which Eberlein indorsed, and the money was secured on that note. Had Mr. Eberlein turned that money over to Castonguay and been content to look to the defendant's contract for his protection, a very different question would have been presented. But the money has never been used to pay the judgment, and never will be unless there is a recovery in this action first. This exactly reverses the terms of the defendant's contract. That contract is to pay the assured what the assured has first been compelled to pay to the injured person; the arrangement now to be substituted provides for paying the injured person what the insurance company has first been compelled to pay to the assured. To say that the assured has actually paid a judgment, when the money has merely been secured from the bank on a note, and never reached the judgment creditor, but is held by an indorser of the note as security for his indorsement, and is to be turned over to the bank at once in case of failure in the present action, is to make substance out of shadow. * * *

Judgment reversed, and action remanded, with directions to render judgment for the defendant dismissing the complaint.

SECTION 2.-THEFT INSURANCE

BIRD v. ST. PAUL FIRE & MARINE INS. CO.

(Supreme Court of Michigan, 1922. 218 Mich. 266, 187 N. W. 265.)

WIEST, J. Defendant company insured plaintiff's automobile against "theft, robbery or pilferage, excepting by any person or persons in the assured's household or in the assured's service or employment, whether the theft, robbery, or pilferage occur during hours of such service or employment or not."

Plaintiff loaned the car to one Jerry Monaghan, a former employé, for a half hour, to drive to the St. Dennis Hotel in Detroit, and the car not being returned as agreed, he tried to locate it, and not being able to do so, reported to the police that his car had been stolen. Later in the day the car was found in a badly damaged condition at the corner of Grand River avenue and Fourth street, in Detroit. There was testimony that Monaghan drove the car to the hotel and there met some companions, started drinking, took his companions in the car and drove. about the city, and came back to the hotel and started drinking again, and became so drunk that he was carried to his room.

Monaghan testified that he left the car in front of the hotel, and that he had the keys to the car in his pocket when he was taken to his room, but the keys were gone when he awakened, and that he had not given the keys to any one, and had not given any one permission to take the car. He testified that he knew who took the car, but would not tell their names.

Plaintiff had the car repaired and brought this suit to recover the expense thereof and obtained judgment.

(1) Defendant contends that plaintiff made no proof of loss in accordance with the terms of the policy, while plaintiff insists he was excused from doing so by the denial of liability by defendant's adjuster.

The policy provided: "In the event of loss or damage the assured shall forthwith give notice thereof in writing to this company or the authorized agent who issued this policy."

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Plaintiff testified: "I notified the insurance company in writing of the car being stolen. I had some discussion relative to the paying of this loss with Mr. Dinning, an adjuster for the St. Paul Fire & Marine Insurance Company, Leonard & Griffin, of whom I bought the insurance. A man from their office went over with me to see Mr. Dinning. I went up to Mr. Dinning's office and asked him what they were going to do about this car, and he said they were not going to do anything, that it wasn't a stolen car. I don't recall the date of this conversation, but it was within a few days after the accident. Mr. Dinning never saw the car to my knowledge, but he said there wasn't any claim at all, that the car wasn't a stolen car."

Defendant claims that the testimony failed to establish the agency of Mr. Dinning and cites Fisk v. Liverpool, etc., Ins. Co., 198 Mich. 270, 164 N. W. 522. It is a sufficient answer to this to say that the notice to the agents who issued the policy to plaintiff made it unnecessary for him to go to an adjuster with his claim of loss, and when he did go to see the adjuster he was accompanied by a man from the office of defendant's agents, and he had a right to consider, under such circumstances, the denial of his claim as excusing him from proving his loss.

(2) It is also urged that there was no evidence tending to prove a theft and that the car may have been taken without intent to steal it, but with intent to return it, and it was upon plaintiff to offer evidence establishing an intent to steal the car on the part of the person taking it.

"It is true, as is contended, that an essential ingredient in the crime of larceny is the existence at the time of the taking of a felonious intent to deprive the owner of his property against his will, yet whether or not such an intent existed is a question for the determination of the court or jury trying the cause. If there is evidence from which such an intent can fairly be inferred, an appellate court is not authorized to