« PreviousContinue »
EXAMPLES OF INSURABLE INTEREST—Continued
Parties Possessing Nature of the Citation of
Insurable Interest. Insurable Interest. Authority.
Tenants—F o r
limited term.. To value of tenement Niblo vs. N. Am. Fire
for occupation. Ins. Co., 1 San. (N.
32. Vendee In property the de- Columbian Ins. Co.
struction of which vs. Lawrence, 2 Pet.
will cause him pe- (U. S.), 25.
33. Vendor In property sold, un- Bates vs. Equit. Ins.
til absolute trans- Co., 10 Wall. (U.
fer takes place. S.), 33.
THE MORTGAGE CLAUSE
One of the most common cases where more than one party has an insurable interest in the same property arises in connection with the mortgagee's interest. In a long line of decisions the principle has been recognized that both the mortgagor and the mortgagee possess an interest in the mortgaged property which each may insure separately, without violating that section of the policy which provides against double insurance. The mortgagor, as owner of the property, may insure the same to the extent of its value, and the mortgagee, as creditor, may effect insurance to the extent of his interest. Both parties may secure insurance without consulting each other, or without giving notice to or receiving the consent of the other insurer. In brief, the courts regard the two insurances as covering separate insurable interests, and hold that where the mortgagee has taken out a policy in his own name and pays the premium, the mortgagor is to be considered a stranger to the contract.
Where the Mortgagee Insures His Own Interest.—Where the mortgagee pays the premium, and insures his interest in his own name, the courts have held that the mortgagor in no way has an interest in the benefits derived from the insurance and the indemnity paid cannot be applied to the pay; ment of the mortgage debt. Now if the mortgagor is not relieved from his debt and the mortgagee is entitled to the proceeds of his policy, it would seem that the mortgagee might receive two payments for one debt. This would manifestly be contrary to justice, and would certainly give rise to strong temptations to commit fraud, especially where the property securing the mortgage consisted of separate items whose aggregate value far exceeded the mortgage debt.
To avoid such double payments it is a well-established legal principle that upon the payment of a loss to the mortgagee the insurance company will be subrogated to the mortgage or other evidence of debt, i.e., will become entitled to all the rights which the mortgagee had in the mortgage or in the insured property. If the company, now the holder of the mortgage, can collect the same when it matures, it will be reimbursed; but in case this cannot be done, it, and not the mortgagee, will be the loser. If the loss is less than the sum to which the mortgagee is entitled, the company is subrogated with the right to collect the loss, but in this case, it should be noted, that the company's rights are subordinate to those of the mortgagee. If, after a loss has been paid, there still remains a portion of the property, the company cannot prejudice the mortgagee's right to this security and the collection of the balance of the. debt. The company is subrogated to so much of the mortgage as it has paid, and is only entitled to that portion of the remaining property as will not be needed to protect the mortgagee's interest in the balance of the debt not yet paid.
When the Mortgagee's Interest is Joined with that of the Mortgagor.—While the mortgagee's interest may be insured directly and separately, it is the desire of the companies to avoid this wherever possible. It is considered by the companies as much the best method to issue the policy in the name of the owner, i.e., the mortgagor, and join the two interests by providing in the policy that the loss, if any, should be payable to the mortgagee. This will enable a company to maintain a better supervision over the policy, will reduce the possibilities of fraud, and will eliminate the complications which may arise when the two interests are insured in different companies.
The practice of protecting the mortgagor's and mortgagee's interests in the same policy has had an interesting development. Various methods have been used at different times to accomplish this end, but all have given way to the modern so-called "mortgage clause." In the first place, the mortgagor may take out the policy in his own name, and then assign it to the mortgagee. This method was at one time in vogue, but is dangerous as far as the protection of the mortgagee's interest is concerned, because the validity of the policy, when an assignment is made without an actual transfer of the property, will depend upon the mortgagor's actions or negligence. In law the mortgagor is still the policy-holder, and as such his acts or omissions may cause a forfeiture of the policy. It is thus seen that the protection of the mortgagee is dependent upon the conduct of the mortgagor, over whom he may not be able to exercise any supervisory control. Again, if the mortgagor has violated the policy and a forfeiture exists at the time of the assignment, the mortgagee's interest is unprotected because of the rule that in making the assignment, the assignor can give only what he possesses, i.e., in this case an invalid policy.
Secondly, the mortgagor may insure his property -and make it payable to the mortgagee "as his interest may appear. '' But this method has been variously interpreted by the courts and, generally speaking, has proved itself to be subject to the objections mentioned under the first method. To join the two interests in the same policy and be just to the mortgagee, it is necessary that he be protected against a forfeiture of the policy through the acts of the owner of the property. This is done to-day through the general use of the "mortgage clause." The mortgagor will take out the policy in his own name, and to protect the mortgagee's interest a special clause is indorsed on the policy, according to which the company agrees to protect his interest as it may appear, regardless of the conduct of the mortgagor as concerns the provisions of the policy. The clause usually reads as follows:
NEW YORK, NEW JERSEY, CONNECTICUT, AND RHODE ISLAND STANDARD MORTGAGEE CLAUSE
Loss or damage, if any, under this policy shall be payable to
(or trustee) as interest may appear, and this insurance, as to the interest of the mortgagee (or trustee) only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property, nor by any foreclosure or other proceedings or notice of sale relating to the property, nor by any change in the title or ownership of the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy; provided that in case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee (or trustee) shall, on demand, pay the same.
Provided, also, that the mortgagee (or trustee) shall notify this company of any change of ownership or occupancy or increase of hazard which shall come to the knowledge of the said mortgagee (or trustee) and unless permitted by this policy, it shall be noted thereon and the mortgagee (or trustee) shall, on demand, pay the premium for such increased hazard for the term of the use thereof; otherwise this policy shall be null and void.
This company reserves the right to cancel this policy at any time as provided by its terms, but in such case this policy shall continue in force for the benefit only of the mortgagee (or trustee) for ten days after notice to the mortgagee (or trustee) of such cancellation, and shall then cease, and this company shall have the right, on like notice, to cancel this agreement.
Whenever this company shall pay the mortgagee (or trustee) any sum for loss or damage under this policy and shall claim that, as to the mortgagor or owner, no liability therefor existed, this company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made, under all securities held as collateral to the mortgage debt, or may, at its option, pay to the mortgagee (or trustee) the whole principal due or to grow due on the mortgage with in