Opinion
No. 75-238.
Opinion delivered March 1, 1976
1. INSURANCE — RIGHT TO PROCEEDS — INSURED INTEREST. — An insurance policy is ordinarily a personal contract, upon which the insured alone is entitled to recover. 2. INSURANCE — RIGHT TO PROCEEDS — INTERESTS IN PROPERTY. — Insurer (INA) was justified in admitting liability, waiving its escape clause and paying the full amount of its coverage to its named insureds even though it knew of record owner's interest in the property when it paid the loss, because the mortgage clause was never activated, and whatever claim record owner might have asserted was necessarily derived from her purchaser and was extinguished when insured paid her purchaser in full. 3. INSURANCE — RIGHT TO PROCEEDS — DOUBLE INSURANCE. — Double insurance exists when two policies cover the same interests in the same property, against the same risks, and for the benefit of the same person, and the purpose of a pro rata clause is to protect insurer against the hazards of over insurance. 4. INSURANCE — RIGHT TO PROCEEDS — DOUBLE INSURANCE. — Where purchaser's insured interest under two fire insurance policies was the same, the insurance was for the same person, and both persons insured by the Fireman's Fund policy were bound by its pro rata clause. 5. INSURANCE — RIGHT TO PROCEEDS — PARTICULAR CASES INTERESTS. — Principles of law that reach a sound result with respect to solvent litigants cannot be abrogated simply because the fortuitous intervention of insolvency may cause a hardship.
Appeal from Pulaski Chancery Court, Third Division, Darrell Hickman, Chancellor, reversed.
Wright, Lindsey Jennings, and Plegge, Lowe Whitmore, for appellants.
Kay L. Matthews, for appellee.
This multi-party lawsuit rose as a result of there having been two concurrent fire insurance policies upon a house in Little Rock that was partially damaged by fire on December 2, 1972. The record owner, Hallie B. Nicholas, died some months later. The appellee, as he administrator of Mrs. Nicholas's estate, brought this suit against the two insurance companies (joining as defendants he other beneficiaries of the policies). The chancellor's decree held each insurer liable in the amount sued for, with penalty and attorney's fees. For reversal each insurer contends that it is not liable to the extent found by the chancellor.
The facts are not in dispute. Mrs. Nicholas originally owned the house, subject to a mortgage not in controversy. She sold the property, by an installment contract, to Edward D. Briscoe, Jr. At that time one of the insurers, Fireman's Fund, insured the property for $10,000, naming Mrs. Nicholas and Briscoe as the insureds. That policy contained a "pro rata" other insurance clause (a term explained in Ark. Grain Corp. v. Lloyd's, 240 Ark. 750, 402 S.W.2d 118). Briscoe later contracted to sell the property to Cleaster Coates. The other insurer, INA, then insured the property for $11,000, naming Briscoe and Coates as the insureds. That policy contained an "escape" other insurance clause (also explained in Lloyd's).
The fire damage amounted to $13,153.47. The two insurers took different courses. INA, without invoking its escape clause, simply paid the full amount of its policy, $11,000, to its insureds, Briscoe and Coates, who presumably divided the money as they saw fit. Briscoe, before this suit was filed, fell behind in his payments to Mrs. Nicholas and reconveyed his interest to her. While the suit was pending Briscoe was adjudicated a bankrupt and was dismissed from the case.
The other insurer, Fireman's Fund, invoked the benefit of its pro rata clause by tendering to its insureds, Nicholas and Briscoe, its proportionate part (10/21st) of the loss. Nicholas rejected the tender and brought this suit, successfully contending in the trial court that Fireman's Fund is liable to him for its full $10,000 and that INA is liable to him for the remaining $3,153.47 of the loss.
We first consider INA's appeal. Here the issue is comparatively simple. An insurance policy is ordinarily a personal contract, upon which the insured alone is entitled to recover. Langford v. Searcy College, 73 Ark. 211, 83 S.W. 944 (1904). INA was therefore justified in admitting liability, waiving its escape clause, and paying the full amount of its coverage to its named insureds, Briscoe and Coates. It makes no difference that INA knew of Mrs. Nicholas's interest in the property when it paid the loss. Whatever claim Mrs. Nicholas might have asserted against INA was necessarily derived from Briscoe and was extinguished when INA paid Briscoe in full. Mrs. Nicholas could not claim the benefits of Briscoe's INA policy without also being subject to its burdens. Nicholas also asserts an equitable lien against the proceeds of the INA policy, but that also was a matter between Mrs. Nicholas and Briscoe. It is argued that this lien theory is supported by the presence of a standard mortgage clause in the INA policy. That clause, however, was never activated, because no mortgagee was named in the policy (as the clause required). We conclude that the chancellor erred in holding INA liable to Nicholas.
As to Fireman's Fund, the pivotal question is whether the INA policy constituted other insurance within the meaning of Fireman's Fund's pro rata clause. Such double insurance exists when the two policies cover the same interests in the same property, against the same risks, and for the benefit of the same person. Couch on Insurance 2d 37:1394 (1962). Here the questions are whether the two policies covered the same interests for the benefit of the same person.
Briscoe's insured interest under the two policies was evidently the same. What he purchased from Mrs. Nicholas is what he sold to Coates — nothing more, nothing less. That he was paying Mrs. Nicholas and being paid by Coates did not divide his estate into two ownerships. It must be remembered that the purpose of the pro rata clause is to protect the insurer against the hazards of over insurance. Such a hazard would have existed if Briscoe had insured the full value of his estate with two different insurers.
By the same reasoning the two policies were for the benefit of the same person — Briscoe. This particular point seems to have arisen very infrequently, but the cases are uniform in holding that there is double insurance where the same person is an insured in each policy. Horridge v. Dwelling-House, Ins. Co., 75 Iowa 375, 39 N.W. 648 (1888); Pitney v. Glen's Falls Ins. Co., 65 N.Y. 6 (1875); Mussey v. Atlas Mut. Ins. Co., 14 N.Y. 79 (1856). Again the hazard of over insurance would exist if Briscoe could recover in full under each policy. As a matter of fact, owing to INA's waiver of its escape clause, the two insurers will pay $11,000 plus $6,263.56, a total that exceeds the physical damage of $13,153.47. If the Nicholas estate sustains a loss it will be attributable .o Mrs. Nicholas's not having taken out a policy by herself, instead of with Briscoe, and to the latter's insolvency after he was paid by INA. Needless to say, principles of law that reach a sound result with respect to solvent litigants cannot be abrogated simply because the fortuitous intervention of insolvency may cause a hardship.
Reversed and remanded for the entry of a decree in harmony with this opinion.
BYRD, J., dissents.
FOGLEMAN, J., not participating.
I disagree with so much of the majority opinion as holds that the INA policy constituted other insurance to Mrs. Nicholas. The Fireman's Fund policy lists the insured's name and address as follows:
"Mrs. Hallie Nicholas, Vendor and Ed Briscoe, Vendee Arkansas Abstract Company 212 Center Street Little Rock, Arkansas" In 44 Am. Jr.2d INSURANCE 1808 it is stated:
"It is generally held that in order for a proportionate recovery clause to operate in the insurer's favor, there must, under the policies, be both an identity of the insured interest and an identity of risk; and the requirement with respect to an identity of risk is not obviated by the fact that the apportionment clause refers to other insurance `whether concurrent or not.'"
In 6 Appleman, INSURANCE LAW AND PRACTICE 3905 (1972), the author states:
"The apportionment of loss between concurrent insurers is proper, where the policy so provides. Proration provisions are inserted in insurance policies to relieve the insurer from the burden of litigating with the insured as to the validity of other policies, and to eliminate any inducement to the insured to commit fraud. But every rule of construction in apportioning losses must yield to the right of the insured to be fully indemnified, and it must always be remembered that the contribution clause in an insurance policy should not be so applied as to diminish the protection of the insured." [Emphasis mine]
In COUCH ON INSURANCE 2d 37:1394 (1962), the author states:
"By definition, other or double insurance exists where two or more policies of insurance are effected upon or cover the same interests in the same property, against the same risks, and in favor of, or for the benefit of, the same person. As all of these conditions must concur, it follows that if different persons have different interests in the same subject of insurance, each may insure his interest without effecting other or double insurance. Likewise a policy of insurance containing a stipulation against `other insurance' is not invalidated by the fact that at the time of its issuance a prior policy covering the same property is in existence, unless the insured has an interest in such prior policy, or will derive a benefit under it, in the event of the destruction of the property."
Also, in 5 Appleman, INSURANCE LAW AND PRACTICE 3057 (1970), the author states:
"`The better rule is to the effect that the interests of vendor and vendee are distinct and different, and that an insurance by such vendee upon his own interest will not nullify insurance previously taken out by the vendor. . . . ."
Furthermore, the trial court found: (Decree of Oct. 10, 1974)
"16. That the plaintiff was never at any time informed by any of the parties of the existence of the policy coverage issued by the defendant, Insurance Company of North America, and had no actual knowledge of that fact until after payment had been made by Insurance Company of North America to Coates and Briscoe."
Thus, while I would prefer that the pro-ration be denied on the theory that it should yield to the right of Mrs. Nicholas to be fully indemnified, there is another basis upon which it should be denied — i.e. another policy obtained without the knowledge of the insured does not constitute other insurance. See Hall v. Concordia Fire Ins. Co. 90 Mich. 403, 51 N.W. 524 (1892), St. Paul Fire Marine Insurance Co. v. Crutchfield, 162 Tex. 586, 350 S.W.2d 534 (1961) and 5 Appleman, INSURANCE LAW AND PRACTICE 3909 (1972).
Therefore, I would enter judgment against Fireman's Fund for the full amount of the policy, the 12% statutory penalty and a $2,500 attorney's fee.
For the reasons stated, I respectfully dissent.