terest, and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities; but no subrogation shall impair the right of the mortgagee (or trustee) to recover the full amount of........claim.

Dated....

Attached to and forming part of Policy No........of the (Name of Company).

Signature for the Company.

The Application of the Clause.-By indorsing the above clause on the mortgagor's policy, the company specifically agrees that the insurance on the mortgagee's interest shall not be invalidated for various reasons, including the acts and neglect of the owner of the property. The company also agrees to give the mortgagee ten days notice before cancelling the policy according to its terms; and provides that upon the payment of a loss it shall be subrogated to all the rights possessed by the mortgagee in all the securities held as collateral to the mortgage debt, but that "no subrogation shall impair the right of the mortgagee to recover the full amount of his claim. In return for these privileges the mortgagee agrees to pay upon demand any premium which the mortgagor may neglect to pay, or upon demand to pay the premium for any increased hazard connected with the property. He also promises that he will notify the company of any change of ownership or occupancy or increase of hazard which shall come to his knowledge. With but few exceptions the courts have enforced these promises. On the other hand, the effectiveness of the protection granted under the mortgage clause has also repeatedly been affirmed. In the opinion of Judge Rapallo (Hastings vs. Westchester Fire Insurance Company, 73 N. Y., p. 153) 1 “The intent of this clause was that in case, by reason of any act of the mortgagors

1

'Also see Ostrander on "Fire Insurance," pp. 351, 352.

or owners, the company should have a defense against any claim on their part for a loss, the policy should, nevertheless, protect the interest of the mortgagees, and operate as an independent insurance of that interest, and indemnify them against loss resulting from fire, without regard to the rights of the mortgagors under the policy; and that, to effectuate that intention, we should hold that, as against the mortgagees, the defendant cannot set up any defense based upon any act or neglect of the mortgagors, whether committed before or after the issuing of the policy, or the making of the agreement between the company and the mortgagees."

While the mortgage clause constitutes an independent agreement between the company and the mortgagee, and recognizes the mortgagee as possessing independent rights, it is essential to bear in mind that the clause is of no effect, except as it is made a part of the policy. With the exception of the agreements contained in the clause, the mortgagee is bound by all the provisions of the policy. As Mr. Ostrander puts it: "Should a forfeiture occur as to the mortgagor, by sale or otherwise, the mortgagee will continue the only person insured, and, a fire subsequently happening, it will become his duty to perform all things under the terms of the policy subsequent to the loss. . . . He is the 'assured,' and the only person under the terms of the policy who sustains toward the insurance company any beneficial relations, and on him, by mutual agreement, falls the duty of performance."

It should be stated here that there are a few instances where the insurer will not be liable under the mortgage clause. A policy which has become void will not be revived by attaching thereto a mortgage clause for the benefit of a mortgagee. In many cases it has been decided that no new rights are created in behalf of the mortgagee by such an act, and that the policy cannot be revived without a new agree

2

ment of the parties, supported by a new consideration." Also where the mortgagee has acted in bad faith, or has secured the promise of protection through misrepresentation or with a view to committing fraud, he will not be protected under the mortgage clause. The clause is not intended to afford protection to the mortgagee against his own wrongdoing. Its whole object is to protect him against misconduct of the mortgagor, whose acts he may not be in a position to control.

Contribution Under the Mortgage Clause.-As will be explained more fully in a later chapter, the standard policy provides that in case several policies have been written on the same property, the company will only pay that part of any loss which is represented by the proportion that its policy bears to the total insurance granted under all the policies. In this connection it may happen that where a number of policies have been written in the name of the owner of the property, he may subsequently make one or more of these policies payable to a mortgagee under the usual Mortgage Clause, promising to protect the mortgagee's interest, regardless of any acts or neglect of the owner. When this is done, the question arises as to how a loss shall be apportioned among the several policies covering the property.

This subject was carefully discussed by the New York Court in the case of the Westchester Fire Insurance Company (73 N. Y., 141). Here the owner of the insured building had secured two policies in different companies, one for $4,000 in the Lycoming Company, and the other for $10,000 in the Westchester Company. The mortgagee had a mortgage on the premises for $14,000 and with the consent of the Company had his interest protected under a Mortgage Clause indorsed on the policy issued by the Westchester Company

1See the many legal citations on page 342 of Ostrander's "The Law of Fire Insurance."

2 Am. Cent. Ins. Co. vs. Cowan, Tex. Civ. App., 34 S. W., 460.

and offering protection against the acts or neglect of the owner. Although the policies provided for the apportionment of the loss in case other insurance existed, the mortgage clause itself did not contain any agreement as to contribution. A loss of $9,000 occurred and the Lycoming Company, in accordance with the terms of its policy, which provided for the payment of any loss in the proportion that its policy bore to all the insurance on the property, promptly settled for $2,571.43, or four-fourteenths of the $9,000 loss, i.e., in the proportion that its policy of $4,000 bore to the total insurance of $14,000. The Westchester Company, whose policy also contained the same apportionment clause, insisted on paying only the balance of the loss, or ten-fourteenths. To this, however, the mortgagee objected on the ground that if this were permitted, his interest under the mortgage clause would suffer.

In deciding this case the court expressly declared that the mortgage clause, when indorsed on the policy, constituted an independent contract between the mortgagee and the Westchester Company. The mortgagee had a right to feel that his interest was protected under this independent agreement, especially since he had no interest in the Lycoming policy. The court therefore ordered payment of the loss to the mortgagee in the same manner as would have been the case if there had been no second policy.

In view of such rulings as the above, it is customary today, if the company wishes to retain the privilege of apportioning its loss among all the policies on a given property, to obviate all legal complications by inserting a "contribution clause" in the mortgage clause. In this case the clause is usually called the "Mortgage Clause with full Contribution." It reads the same as the clause already given, with the exception that there is added another paragraph to the effect that "in case of any other insurance upon the within described property, this company shall not be liable under

this policy for a greater proportion of any loss or damage sustained than the sum hereby insured bears to the whole amount of insurance on said property, issued to or held by any party or parties, having an insurable interest therein, whether as owner, mortgagee, or otherwise."

Although the wording of this "contribution clause" would seem to be sufficiently definite to preclude a misunderstanding, there have been conflicting decisions as to the effectiveness of this clause where the mortgagor, after protecting the mortgagee under a mortgage clause providing for full contribution, takes out subsequent insurance, of which the mortgagee may have no knowledge. In the case of Eddy vs. London Assurance Corporation (143 N. Y., 311) the owner of the property had taken out insurance for the protection of the mortgagee. The mortgage clause protected the mortgagee against the acts of the owner, and contained the contribution clause as quoted above. Subsequently, and for his sole benefit, and without the mortgagee's consent or knowledge, the owner procured other insurance which was not made payable to the mortgagee. Then a loss occurred, and the companies issuing the policies made payable to the mortgagee insisted on the right of paying only that portion of the loss represented by their pro-rata share of all the insurance on the property, even though taken out subsequent to the issuance of the mortgage clause and for the sole benefit of the owner. The court argued that in this particular case the "full contribution clause" in the mortgage clause was inconsistent with the other section in the same clause which protects the mortgagee against the acts of the owner, and that this last agreement must take precedence over the provision for contribution. Since the last policies were taken out by the owner for his own benefit and without the knowledge of the mortgagee, the court argued that "the act of obtaining this additional insurance was the act of the owner, and it was unknown to the mortgagee, and, of course, not