Opinion
Decided March 9, 1936.
Insurance — Fire — Policy procured by mechanic's lien holder — Knowledge of agent is knowledge of insurer, when — Insured entitled to reformation of policy, when.
1. Where a duly authorized agent of a fire insurance company writes a policy for the purpose of protecting the interest of a mechanic's lien holder, the agent's knowledge of the whole situation is that of the company. (Lambert v. Connecticut Fire Ins. Co., 49 Ohio App. 483, approved and followed.)
2. Such mechanic's lien holder is entitled to a reformation of the policy so as to protect his interest where, through inadvertence, an effective clause which would protect such interest was omitted.
APPEAL: Court of Appeals for Hamilton county.
Messrs. Nichols, Morrill, Wood, Marx Ginter, for Martin Falkenberg.
Messrs. Harmon, Colston, Goldsmith Hoadly, for Industrial Fire Insurance Company.
This matter is presented on appeal from the Court of Common Pleas of Hamilton county, Ohio. The pleadings consist of an amended petition, amendment to petition, answer, reply, and supplemental amended petition. By order of court the answer was considered refiled as a response to the amended petition and supplemental petition.
The plaintiff alleges that under contract he erected certain buildings for one Lizzie Gibbons; that she failed to pay him for the labor and materials furnished according to the provisions of such contract, and that he filed and recorded a mechanic's lien upon the premises on which such buildings were erected; that he applied to the defendant, Industrial Fire Insurance Company, through its agent, Walls, for a policy of fire insurance on such property, and that in consideration of a premium, which plaintiff paid the defendant, it issued to plaintiff "its dwelling, fire and windstorm policy, insuring plaintiff against loss of his interest in said property by fire or windstorm"; that "it was the intention of the parties to protect the plaintiff by reason of his mechanic's lien"; that although the defendant knew of the real interest of the plaintiff in the premises it described such interest as that of mortgagee, but that it was the intention of the defendant to protect the interest of plaintiff as the holder of a mechanic's lien; that the policy contained a "mortgage clause" erroneously describing plaintiff as mortgagee, and through fraud, error or mistake such clause was not properly signed by the proper agent of defendant; that the building so insured was destroyed by fire, that plaintiff gave notice of his loss, made proof thereof, and that defendant refuses to pay.
A second cause of action prayed for recovery upon the policy, obviously as reformed.
The prayer of the amended petition is for reformation and recovery upon the contract as reformed.
In response to a motion of the defendant, granted in part by the court, the plaintiff in his amendment to the petition attached a copy of the policy in question.
In his "Supplemental Amended Petition" the plaintiff states that it was the intention of all parties that the insurance policy which was issued to him was to have attached to it a standard clause, making loss payable to the plaintiff as holder of a mechanic's lien, and that through fraud, mistake, or inadvertence such clause was not attached to the policy, and reformation is again requested.
The answer admits that the plaintiff made application to its duly authorized agent "for a sum not exceeding $2500 against loss and damage by fire to his alleged interest in his certain alleged lien," that he advised such agent of the nature of his interest, that the property was owned by one Lizzie Gibbons, and that he desired insurance to protect his interest in such lien.
The answer further alleges:
"Defendant admits that on March 28, 1932, it issued to Lizzie Gibbons its certain policy of insurance designated as Policy No. C-D 36889, whereby, among other things, it agreed to insure the said Lizzie Gibbons against loss and damage by fire, in a sum not exceeding $2500, for the period of one year, beginning on the 28th day of March, 1932, at twelve o'clock noon, and ending on the 28th day of March, 1933, at twelve o'clock noon, to a certain dwelling house situated on Lot 23, Kratz Subdivision on the east side of Collinsdale avenue, Forestville, Hamilton county, Ohio."
It is further alleged that the policy contained a clause requiring adjustment of loss with the assured, and payable to the assured or mortgagee as his interest may appear.
The answer further alleged that the agent, Walls, was wholly without authority to secure the interest of a lien holder, that no one on behalf of the defendant had any dealings with Lizzie Gibbons, and that she was ignorant of the application and issuance of such policy; further that she was not the unconditional owner of the premises at the time of the fire, as was required by the policy issued.
The answer also pleads a provision of the policy requiring suit to be brought thereon in twelve months after the fire. The defense to the second cause of action is a general denial.
A reply was filed which in substance is a general denial of the new matter alleged in the answer.
It is claimed that this action is barred by the provisions of the twelve-month limitation in the policy. Even if this be effective, the original petition was filed within the period, and, while reformation was not therein sought, there was sufficient compliance with the provisions referred to.
The second cause of action in the amended petition is in substance the same as the cause of action contained in the original petition.
The facts are that the plaintiff for some time previous to the incidents forming the basis of the present controversy had been engaged in the business of erecting houses, and was engaged by Lizzie Gibbons to build one for her under a contract providing for the payment to him of some $2,800. The building was erected, and not receiving payment the plaintiff filed a mechanic's lien covering this amount upon the premises owned by Lizzie Gibbons.
It is admitted that a man by the name of Walls was the duly accredited agent of the defendant and had full authority to write insurance policies. The plaintiff and Walls had dealt together on previous occasions in which the interest of the plaintiff in buildings constructed or under construction had been satisfactorily insured. The plaintiff applied to Walls for insurance to protect his interest in the premises which constituted the security for his lien. There can not be the slightest doubt that Walls understood perfectly just what the plaintiff wanted. The defendant insurance company is charged with his knowledge. Walls agreed to write the insurance and did so. This policy was allowed to expire. It contained a "mortgage" clause, which it is obvious both Walls and the plaintiff thought would cover him as the holder of a mechanic's lien. Some few months after the expiration of the first policy, a second was written up on the plaintiff's application to Walls for the "same" protection. Through inadvertence, an effective mortgage clause was omitted. It was again the obvious intention of the parties to secure the interest of the plaintiff as a holder of a mechanic's lien, by the use of a "mortgage clause," and it is also apparent that this clause was not executed purely through inadvertence.
Now fraud is never presumed, and we cannot presume that Walls, and through him the defendant, intended to take the plaintiff's premium — which has never been tendered by the defendant for either policy — without giving him protection as a consideration for the payment of such premium. The policy did refer to the plaintiff as "mortgagee."
The defendant claims Walls had no authority to insure lienholders. That the plaintiff had an insurable interest cannot be gainsaid. The course of dealing between the parties negatives the defendant's contention. Walls knew the whole situation and his knowledge is that of the company. This we have fully discussed in Lambert v. Connecticut Fire Ins. Co., 49 Ohio App. 483, 197 N.E. 349, and it is unnecessary to here repeat the authority upon which our conclusion is predicated.
It is also claimed that the contract was with Lizzie Gibbons and that as she never authorized the issuance of a policy to her the whole contract is void. This is purely subterfuge and evasion.
No one can review the evidence in this case without inevitably coming to the conclusion that all the parties were fully advised of just what was wanted by the plaintiff, and that it was the intention to secure him by issuing a policy to Lizzie Gibbons; loss, if any, payable to the plaintiff as his interest should appear. The agent told the plaintiff that this is what the means used would accomplish. The plaintiff had a right to rely upon his advice as a representative of the company and an expert in insurance. To hold otherwise is to permit a gross fraud to be perpetrated by unconscionable means.
If no other equitable principle were available to the plaintiff to secure relief in the instant case, and there are others, the principle should prevail that where one of two innocent persons must suffer it must be the one who places it in the power of a third person to do the injury.
The policy will be reformed to express the true intent of the parties, that is, that the interest of the plaintiff as the holder of a mechanic's lien upon the premises is secured against loss by fire.
Decree accordingly.
MATTHEWS and HAMILTON, JJ., concur.