Opinion
Decided June 26, 1936.
An insurer in a fire policy containing a clause for payment to the assured's mortgagee as his interest might appear remains liable to him though the policy has been cancelled at the request of the assured without notice to the mortgagee, and if it thus appear that the owner was not to benefit by the insurance payment to the mortgagee. An insurer being thus liable to the mortgagee is subrogated to his rights, and if after such cancellation the assured procures other insurance payable to himself, the first insurer is entitled to reimbursement out of the avails of the second policy to the amount due the mortgagee. To avoid circuity of action, on a bill in equity by an assured to determine which of two policies was in force at the time of the loss, a right of subrogation of the first insurer in respect to its liability to a mortgagee may be enforced against the amount due to the assured by the second insurer.
BILL IN EQUITY, to determine which of the two policies issued to the plaintiff Labonte by the defendant companies was in force on September 13, 1933, when the property insured by both policies was totally destroyed by fire. The facts were found by the court.
The plaintiff Labonte was the owner of the property when she was divorced on July 11, 1933, from her former husband. The plaintiff Fred C. Cleaveland was appointed receiver on July 21, 1933, to sell the insured real estate and divide the proceeds in accordance with the decree of the court entered in the divorce proceedings. The fire occurred before any sale was effected. At the time of the fire the plaintiffs Edmund Sullivan and Emile Dubey held mortgages on the property, and their respective interests were $848.40 and $636.50.
The St. Paul policy was issued on January 1, 1931, in the sum of $4,000, and originally stood in the name of Mrs. Labonte's husband, but was later transferred to her name. It was payable in case of loss to the mortgagees as their interest might appear. The policy was never returned to Mrs. Labonte, after the transfer was made, and when she and her husband separated she made unsuccessful efforts to locate it. Disclosing the facts to the agents of the defendant Phoenix Insurance Company, Mrs. Labonte obtained from them a policy written by that company in her name in the sum of $4,000, but not mentioning the mortgage interests. She acted honestly and in good faith, and not with the purpose of securing additional insurance. Later she told the agent of the St. Paul company to cancel its policy, and he agreed to do so. The St. Paul policy was never found until after the fire, and the only record of its cancellation was a memorandum made by the agent.
The policy provided that it might be "cancelled at any time at the request of the insured." The court ruled that the plaintiff Labonte had cancelled her interest in the St. Paul policy and that no act on the part of the company was necessary in order to complete the cancellation; but as the cancellation was without the knowledge and consent of the mortgagees, their rights were unaffected. No exception was taken by any party to this ruling or to any of the findings.
The trial court (James, J.) transferred the question of law raised by the exception of the St. Paul company to the denial of its request for a ruling that "if it shall be determined that the Phoenix Insurance Company is liable under its policy . . . that for the purpose of preventing circuity of action it be decreed that the proceeds of the policy of the said Phoenix Insurance Company be first applied in satisfaction of all mortgage indebtedness against said property."
The St. Paul policy contained a provision that "whenever this company shall be liable to a mortgagee for any sum for loss under this policy for which no liability exists as to the mortgagor or owner, and this company shall elect by itself or with others to pay the mortgagee the full amount secured by such mortgage, then the mortgagees shall assign and transfer to the companies interested upon such payment the said mortgage, together with the note and debt thereby secured."
The decree of the court ordered the Phoenix company to pay all of the interest of the plaintiff Labonte, and the St. Paul company to pay all of the interests of the mortgagees. The plaintiff Labonte does not claim, and never has claimed, that she is entitled to a sum which, added to the mortgage interests, would exceed $4,000. The only questions ever presented were whether the Phoenix policy was valid; and if so, whether the total coverage should be paid solely by the Phoenix company or be distributed between the two companies.
Irving A. Hinkley, for the plaintiffs.
Thorp Branch (Mr. Branch orally), for the St. Paul company.
Warren, Wilson, McLaughlin Bingham, for the Phoenix company.
The findings and rulings unexcepted to establish the liability of the St. Paul company to pay to the mortgagees the sums of $848.40 and $636.50 respectively. They also establish the liability of the Phoenix company to pay Mrs. Labonte $4,000 unless deductions are to be made on account of the liability of the St. Paul company.
The St. Paul company asserts that it has a right to be subrogated to the claims of the mortgagees upon the notes and mortgages given by Mrs. Labonte. The case states that the company seasonably requested the court to rule in accordance with this contention. We therefore assume that the issue of subrogation was properly raised and that the parties were heard or had full opportunity for hearing upon the issue. If the St. Paul company had the right claimed, it might, upon payment to the mortgagees of their interests, take assignments from them, sue Mrs. Labonte on the notes and summon the Phoenix company as trustee. If such are its rights, the court, in order to avoid circuity of action, should have decreed that the Phoenix company pay the losses of the mortgagees directly, and pay to the receiver the sum of $2515.10. Smith v. Bank, 69 N.H. 254.
The St. Paul policy having been cancelled as to the mortgagor's interest and remaining effective as to the interests of the mortgagees, must be treated as a contract with the mortgagees separately. Fidelity-Phenix c. Co. v. Brennan, 85 N.H. 291, 294. If the mortgagees had obtained this policy themselves, even without a clause giving the insurer the right of conventional subrogation, it is probable that legal subrogation would have resulted, unless it appeared that the mortgagees effected the insurance as agents for and on account of the owner. If the sole fact that the owner paid the premium for a policy taken out by the mortgagees would result in a construction that the contract was intended to benefit the owner, a contrary construction would be required if the policy contained a provision showing that it was not intended that the owner should benefit from the insurance. Joyce, Insurance (2d ed.), s. 3563.
This case can hardly be distinguished in principle. Though the owner originally took out the policy and paid the premium, the contract specifically provided that if the insurer became liable upon it to the mortgagees, but not to the owner, payment of the full amount of the mortgages should entitle the company to subrogation. By her own act Mrs. Labonte released the St. Paul company from liability to her. Upon a construction of the contract as it stood after the owner ceased to be a party to it, the intention must be found to be that expressed — that the owner should not benefit from the insurance.
If the policy, instead of being cancelled as to the owner's interest, had been avoided by her default, the insurer would have been subrogated. Badger v. Platts, 68 N.H. 222; Fidelity-Phenix c. Co. v. Brennan, supra. Nowhere have we found a decided case in which the right of subrogation was claimed where non-liability to the owner depended on his voluntary cancellation of the policy as to his interest. However, the reasonable test of the right to subrogation, as we gather from the contract, is the insurer's lack of liability to the owner, not the manner in which non-liability arose. The ruling sought by the St. Paul company should have been made.
Exception sustained.
BRANCH J., did not sit: the others concurred.