Opinion
Argued March 25, 1988
Decided May 3, 1988
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, William P. McCooe, J.
Ira J. Greenhill for respondent-appellant. Peter L. Zimroth, Corporation Counsel (Anshel David, Glenn Newman and Stanley Buchsbaum of counsel), for appellant-respondent.
Mitchell Steinberg for respondent.
MEMORANDUM.
The order of the Appellate Division should be reversed, with costs only to the City of New York against defendant-respondent Cohen, and judgment should be granted declaring that defendant City is entitled to payment of the proceeds of the insurance policy and that defendant Cohen is not entitled to recovery.
Plaintiff issued a fire insurance policy to defendant Cohen as court-appointed receiver of Bronx premises subject to a foreclosure proceeding. A fire loss occurred in 1984 and plaintiff paid the $20,400 proceeds of the policy to the City of New York, since the City had a real estate tax lien on the property in the sum of $58,395.02. The payment was made pursuant to Administrative Code of the City of New York § 11-2801 (3) (replacing § C17-3), providing in pertinent part: "Prior to the payment of any proceeds of a policy of insurance for damages caused by fire to real property, which policy insures the interest of an owner and is issued on real property located within the city, and following notification to the commissioner by an insurer of the filing of a claim for payment of such proceeds, the commissioner shall claim, by serving a certificate of lien, against such proceeds to the extent of any lien (including interest and penalties to the date of the claim) thereon, which claim when made and perfected in the manner provided for in section twenty-two of the general municipal law and section three hundred thirty-one of the insurance law, shall constitute a special lien against such proceeds and shall, as to such proceeds, be prior to all other liens and claims except the claim of a mortgagee of record named in such policy. Notice of the service of the certificate of the special lien shall be given to the insured by certified mail" (emphasis added).
Supreme Court and the Appellate Division, holding that the policy in favor of the receiver did not "insure the interest of the owner", declared in this interpleader action that the receiver was thus personally entitled to the fire insurance proceeds and that the insurer was entitled to a return from the City of the "erroneously" paid proceeds so they could be paid over to the receiver.
The receiver of this property, appointed by a court in 1980, has fiduciary responsibilities which embrace, among many, standing in the stead of the financially defaulting owner of property. To this extent, and we need decide no more, the receiver, for these fire insurance purposes under the particular statute, also stands in the same relationship to the tax lienor municipality as the owner does.
The ordinary reading and construction of the pertinent Administrative Code provision plainly warrants our treating this policy, secured by the receiver, as one which insures the interest of an owner at least for purposes of satisfaction of this prioritized municipal tax lien. Arguments to the contrary require more strained construction since they would require the proceeds, possibly diminished or lost entirely, to pass through the receiver's hands first. The protection for direct, accelerated and nondiscounted payment of the proceeds is, equally with arson fraud prevention, what this statute was designed to accomplish based on the letter and history of the authorizing provision, General Municipal Law § 22 (3) (see, Letter from Assemblyman Koppell to Governor, July 28, 1977, and Mem of Secretary of State to Counsel to Governor, July 25, 1977, both in Bill Jacket, L 1977, ch 738).
Nothing inherent in the role of the receiver is contrary to or undermined by this sensible construction and result. Indeed, a separate subdivision, Administrative Code § 11-2801 (6) (replacing § C17-6) authorizes an owner — here, the receiver — to request and recoup the fire insurance proceeds from the City if used to restore the property.
Chief Judge WACHTLER and Judges SIMONS, KAYE, ALEXANDER, TITONE and BELLACOSA concur in memorandum; Judge HANCOCK, JR., dissents and votes to affirm in an opinion.
Order reversed, etc.
Under both General Municipal Law § 22 (2) and Administrative Code of the City of New York § C17-3, the City may assert a claim for real estate back taxes against the proceeds of a fire insurance policy, only where the policy "insur[es] the interest of an owner [emphasis added]" in the property. Because I believe that the insurance policy in question, issued to a court-appointed receiver, does not insure the interest of an "owner" within the meaning of the statutes, I would affirm and hold that Cohen, not the City, is entitled to the insurance proceeds. Accordingly I dissent.
In 1980, defendant Bernard Cohen was appointed the receiver by Supreme Court in a mortgage foreclosure proceeding involving a parcel of realty improved by a one-story structure housing seven stores. Pursuant to his duties, Cohen purchased from plaintiff a fire insurance policy to cover loss to the property during his receivership. The policy listed Cohen as the sole "named insured".
On May 29, 1984, the premises were damaged by fire to the extent of $20,400. The City filed a certificate of special lien on the policy for unpaid property taxes and plaintiff, pursuant thereto, paid the entire proceeds to the City. When Cohen also demanded payment on the policy, plaintiff commenced this action to determine who is entitled to the proceeds. Both the City and Cohen cross-moved for summary judgment. Supreme Court held that neither General Municipal Law § 22 nor Administrative Code § C17-3 (recodified as § 11-2801 [3]) authorized the City to claim against the policy. The Appellate Division affirmed, without opinion.
The fire insurance policy here plainly does not insure the interest of an owner. The sole named beneficiary is Cohen. As a court-appointed receiver, he obtained possession of the property, not title (see, Stokes v Hoffman House, 167 N.Y. 554, 559-560; Kenney v Home Ins. Co., 71 N.Y. 396, 401). Since this mere possessory interest in the premises as receiver clearly does not constitute ownership, the policy does not, on its face, insure the interest of an owner. The City argues, and the majority apparently holds, however, that a receiver is, among other things, a fiduciary on behalf of the owner and, therefore, an insurance policy for the benefit of a receiver should be treated as one "insuring the interest of the owner" (see, majority mem, at 985).
I disagree. It is well settled that a receiver is not an agent of the individual parties (see, Atlantic Trust Co. v Chapman, 208 U.S. 360, 370-371; Matter of Schwartzberg v Whalen, 96 A.D.2d 974, 975; Kaplan v 2108-2116 Walton Ave. Realty Co., 74 A.D.2d 786; Jamaica Sav. Bank v Florizal Realty Corp., 95 Misc.2d 654, 656). Rather, a receiver is an officer of the court who acts solely at its direction and on its behalf. (See, Atlantic Trust Co. v Chapman, supra; Matter of Schwartzberg v Whalen, supra; 49 N Y Jur, Receivers, §§ 1, 4.) While in a sense a receiver is a fiduciary who must act for the benefit of all parties interested in the property (see, Matter of Schwartzberg v Whalen, supra, at 975), a receiver must be "indifferent" between them (Atlantic Trust Co. v Chapman, supra, at 370), owing "allegiance only to the court and not to" any particular party (Jamaica Sav. Bank v Florizal Realty Corp., supra, at 656). In short, a receiver, such as Cohen, acts as an agent of the court for the benefit of the parties collectively — not in interest of the titled owner or any particular party. Hence, I cannot agree with the majority that a receiver "stands in the same relationship to the tax lienor municipality as the owner does." (Majority mem, at 985.)
Indeed, a receiver may obtain insurance only upon the court's approval (see, 149 Clinton Ave. N. v Grassi, 51 A.D.2d 502, 503; Investors Ins. Co. v Gorelick, 108 Misc.2d 353, 355; see also, CPLR 6401 [b]). If the receiver fails to maintain insurance as directed or procures unauthorized insurance, he may be held personally liable for damages or the premiums, respectively (see, 149 Clinton Ave. N. v Grassi, supra, at 506-507; Investors Ins. Co. v Gorelick, supra, at 355).
The City contends, nevertheless, that the policy must insure the owner's interest in the property because a receiver does not himself have any insurable interest in it. Again I disagree. In Scarola v Insurance Co. ( 31 N.Y.2d 411), we stated the rule that: "'In general a person has an insurable interest in the subject matter insured where he has such a relation or connection with, or concern in, such subject matter that he will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. Great liberality is indulged in determining whether a person has anything at hazard in the subject matter of the insurance, and any interest which would be recognized by a court of law or equity is an insurable interest.'" ( 31 N.Y.2d, at 413, supra, quoting 44 CJS, Insurance § 175 [b].) (See also, 30 N.Y. Jur, Insurance, § 752.) It is, therefore, not necessary that the party obtaining insurance have title to the covered property (see, Scarola v Insurance Co., supra, at 412-413; Riggs v Commercial Mut. Ins. Co., 125 N.Y. 7, 12-13). It is sufficient if the party may be held liable, either personally or in his official capacity, for damage to property entrusted to him. For this reason a receiver has an insurable interest in the property under his control and may, therefore, obtain insurance for his own benefit (see, 149 Clinton Ave. N. v Grassi, 51 A.D.2d 502, 503, 506-507; 30 N.Y. Jur, Insurance, § 759; 49 N.Y. Jur, Receivers, §§ 64, 66).
Moreover, even assuming that the phrase "insuring the interest of an owner" could be considered ambiguous, I find nothing in the language of General Municipal Law § 22, Administrative Code § C17-3 or the legislative history which suggests that permitting the City to claim the proceeds of a fire policy issued to a receiver would further the underlying statutory purpose. On the contrary, memoranda of officials concerned with the drafting and adoption of the legislation leave no doubt that the only purpose was to discourage owners of tax delinquent properties from burning their buildings, collecting the insurance proceeds and leaving the City with no assets from which to recoup the cost of demolition or collect the back taxes (see, e.g., Bill Jacket, L 1977, ch 738, Mem in support of legislation and news release of Senator John Flynn [Senate sponsor]; Mem in Support of Assemblyman Leonard Silverman [Assembly sponsor]; Letter of Assemblyman G. Oliver Koppell [initially a cosponsor in Assembly] to Governor, dated July 28, 1977; Mem of Secretary of State Mario Cuomo to Governor, at 3, dated July 25, 1977; Letter from Department of Commerce to Governor, dated Aug. 5, 1977).
In Assemblyman Silverman's memorandum in support of the legislation the purpose of the bill was stated as follows: "Arson is an increasing problem within the state, and studies indicate that a significant number of fires are set for profit. This bill is an effort to remove some of the profit by limiting the proceeds of insurance policies to those sums in excess of the amount already due but unpaid to the municipalities of the state on real property taxes. In addition, the cost to the municipality for removal of a safety hazard by demolition is to be recaptured from the proceeds." In his letter to the Governor the Commissioner of Commerce stated: "The bill will enable taxing districts to collect taxes due where a fire destroys taxed premises, and will prevent owners of such premises from collecting all the insurance, then abandoning it, leaving it to the taxing district to pay for its eventual wrecking and removal."
Depriving a receiver of his right to the insurance policy proceeds would certainly not serve the purpose of deterring other arson-minded property owners from their misdeeds. Nor is such a step necessary to preserve the fund since — unlike the arsonist-owner who decamps with the insurance money — the court-appointed receiver has a sworn duty to keep the fund intact. I find nothing in the legislative history supporting the statement that the purpose of the statute is to provide a municipality with "protection for direct, accelerated, and nondiscounted payment of the proceeds" (majority mem, at 985). While the Legislature might choose to give a municipality a priority claim to insurance proceeds, it has not done so in this statute.