a building and B has a mechanic's lien on that building for $3000. There are now two interests in the building. Suppose A takes out a policy and the building burns. How much can A recover? Clearly he is still the owner of the building and just as clearly the ultimate loss as between himself and B will fall on A. So, irrespective of the extent of B's lien, A can still recover the full value of the building insured (12). The same principle applies if B, instead of being a lienholder, is a mortgagee, and for the same reason. So, if A, after mortgaging to B, gives a second mortgage to C, A is still the owner of the building -the one on whom the loss will ultimately fall-and consequently he can still recover up to the full value of the building. So, even, it has been held, if A's equity of redemption has been sold, but he still has a period within which to redeem from the purchaser at the sale (13). Another case that illustrates the same principle is this: Suppose B agrees in writing with A to buy A's house and lot. As between A and B, B is now the real owner of the property. Even though the house is burned, A can still tender him a deed and compel him to pay the full value. A's only interest in the premises is for the unpaid purchase price, if any. It will be seen, therefore, that this situation is in its essence like the situation of mortgagor and mortgagee, B now occupying substantially the position of mortgagor and A that of mortgagee. It is well settled that under these circumstances B may insure for the full value of the property and recover in case of loss (14). (12) Foley v. Insurance Co., 152 N. Y. 131. (13) Strong v. Insurance Co., 10 Pick. (Mass.) 40. (14) Insurance Co. v. Tyler, 16 Wend. (N. Y.) 385. § 146. Limited interests not definitely measurable. A somewhat different group of cases to which the same principle has been applied is this: Suppose A is a widow, who has a dower interest for her life in the property in question, and then the property is to go to X, her child. Under these circumstances A is for the present the owner of the property. If the house as a structure is worth $10,000, it cannot be said with certainty that, if it is destroyed, anything less than $10,000 will indemnify A; and, if her policy is for that amount, it is generally held that she can recover in full (15). This case illustrates very clearly the fundamental doctrine of insurance law, that, what is insured, is by the terms of the policy, the property and not the interest of the insured. The language of the policy (16) is "against all direct loss or damage by fire to the following described property." The position that the insured takes, and in which he has been sustained by the courts, is that the language of his policy is clear; that he has satisfied the requirements of an insurable interest (17) and that, because of the indefinite extent of his interest, it cannot be said that he is getting more than indemnity in getting the full value of the property insured. This doctrine was perhaps even more strikingly illustrated in the following case: A, the insured, was the owner of a building which stood on leased ground, and his lease of the ground had only a short time to run. The building was destroyed by fire, and A was allowed to recover the full value of the building. The court (15) Merrett v. Insurance Co., 42 Iowa, 11. (16) App. E, 1. 4. (17) §§ 9-11, above. rested its decision upon the grounds above mentioned (18). § 147. Limited interests definitely measurable: Liens. Let us pass now to the second kind of limited interests, namely those which can be exactly measured. Take the reverse of the case already considered. Suppose A owns a house worth $10,000 and B has a mechanic's lien or a mortgage upon it for $3000. As has already been said, A clearly has an insurable interest as owner and can recover as such. Clearly B also has an insurable interest (19). Suppose B does insure and the house is totally destroyed, but the land, which is covered also by the mortgage or the lien, is alone enough to satisfy that mortgage or lien, or suppose that A is personally good for the amount of B's claim. Can B, under these circumstances, recover from the company when it may be said that in one sense he has suffered no loss? It is well established that he can, and the reason is the fundamental doctrine already referred to, that what is insured is the property, and not the interest of the insured or the solvency of the mortgagor. And the same principle applies where there is only a partial destruction of the house, providing the amount of damage equals $3000 (20). The same principle is illustrated on facts very different from those last considered. Suppose A owns a house and lot worth $10,000. He gives a first mortgage to B for $7,000 and a second mortgage to C for $5000. C takes out a policy for $5000, the property (18) Laurent v. Insurance Co., 1 Hall (N. Y.) 41. (19) §§ 9-11, above. (20) Insurance Co. v. Insurance Co., 55 N. Y. 343. is totally destroyed, and A is insolvent. C can recover his $5000 from the company, although it is clear that he could not get it out of the property or out of A. Of course this principle that what is insured is property and not the interest, and that consequently the insured may recover with reference to the injury to the property and not with reference to the injury to his interest, is limited by the equally fundamental proposition that in no case can the insured recover more than what will indemnify him. Thus, in the case last given, if B, the firt mortgagee for $7000, had taken out a policy for $8000, and the property had been totally destroyed, it is clear that B could not recover more than the $7000, which would fully indemnify him; and it would be useless for him to argue that the total value of the property destroyed was greater than that. In other words, the principle with reference to lienors, mortgagees, and other persons with definitely limited interests, is well stated in a leading United States case as follows: "One who has a mechanic's lien on the property, by virtue of a contract with the owner, has an equal insurable interest, limited only by the value of the property and the amount of his claim" (21). § 148. Same: Vendor and vendee. As a matter of strict logic one would expect, following the principles already considered, that, in the case of vendor and vendee, the vendor could recover on a policy no more than the unpaid balance of his claim against the vendee, and this regardless of the amount for which his policy was issued. In fact, the very decided weight of authority in this coun (21) Insurance Co. v. Stinson, 103 U. S. 25. try seems to be that the vendor may recover for the full value of the property insured, and, after deducting enough to satisfy himself, he must turn over the balance to the vendee to aid in indemnifying him (22). The reason for this doctrine will be explained later (§ 154). The same principle is applied in some jurisdictions in the case of insurance by a life tenant (23). The same principle has also been applied to a warehouseman taking out insurance on property stored with him. He may recover the full amount and hold the sum so recovered as trustee for the various depositors (24). § 149. Co-insurance. Suppose A owned property worth $15,000, and he took out three policies in three different companies, each for $5000, and then suffered a $3000 loss. He can clearly recover his $3000 from any one of the three companies that he chooses. He cannot recover more, because of the principle of indemnity only. The company from which he recovers will then proceed against the other companies to compel them to pay their respective proportion of the loss, so that it will ultimately rest on all three. To do away with this circuitous method of adjusting the respective rights of the parties, the policies today almost always contain a clause providing that the company shall not be liable for a greater proportion of any loss, than the amount insured by that policy shall bear to the whole amount of insurance taken out on the property (25). Where all policies cover the same prop (22) Insurance Co. v. Updegraff, 21 Pa. 513. Waters v. Insurance Co., 5 E. & B. 870. (25) App. E, 11. 197-200. |