Opinion
Decided April 26, 1935.
Insurance — Fire — Standard mortgage clause — Mortgaged property transferred to mortgagee — No forfeiture of right to recover under policy, when.
Where a fire insurance policy covering a dwelling contains a standard mortgage clause in favor of the mortgagee, the transfer to the mortgagee of the mortgaged property is not such a change of ownership as will work a forfeiture of the right to recover under the policy for damage by fire.
ERROR: Court of Appeals for Clinton county.
Mr. N.P. Clyburn, Messrs. Barns Barns and Messrs. Dinsmore, Shohl Sawyer, for plaintiff in error. Mr. John Harlan and Mr. C. Luther Swaim, for defendants in error.
The parties stand in the same order here as they did in the trial court.
The case was a civil action for money and was tried to the court without the intervention of a jury. The action was brought by The Union Central Life Insurance Company against The Clinton Mutual Insurance Association, of Wilmington, Ohio, seeking to recover on a policy of fire insurance. On the issues joined the trial court found in favor of the defendant, The Clinton Mutual Insurance Association, and so rendered its judgment. From that judgment The Union Central Life Insurance Company prosecutes error to this court.
It appears from the record that on the 23rd day of March, 1924, Elijah Van Pelt, one of the defendants, was the owner of a certain dwelling house situated on his farm in Fayette county; that he took out an insurance policy in The Clinton Mutual Insurance Association of Wilmington, Ohio, on his dwelling house, above referred to, that he paid the premium, and that the insurance issued was against loss or damage by fire, etc., in the sum of $3,500. The policy was numbered 2267, and was to continue in force until it should be cancelled by the executive committee, or until surrendered by the said insured. Long prior thereto, to wit, on the 3rd day of March, 1921, Van Pelt executed and delivered to the plaintiff, The Union Central Life Insurance Company, a mortgage in the sum of $27,000 on the premises referred to, on which the dwelling house was located, and on which the defendant insurance association had issued the policy No. 2267. The mortgage was duly recorded and was in full force and effect on the 2nd day of April, 1932.
Plaintiff alleged that on the 2nd day of April, 1932, the building described in the policy of insurance in question as the dwelling house was totally destroyed by fire; that the insurance at the time was in full force and effect and that immediately after the fire the insurance association was notified of the loss, but has paid no part thereof.
To the policy of insurance, No. 2267, herein referred to, a rider was attached and made a part thereof, which provided: "This policy is hereby made payable in case of loss to The Union Central Life Insurance Company of Cincinnati, Ohio, mortgagee, as its interest may appear."
Plaintiff seeks judgment for $3,500, the amount for which the property was insured. A copy of the policy with the rider attached is made a part of the petition and is attached thereto.
The answer of the insurance association, defendant, admits the issuing of the policy of insurance to Elijah Van Pelt on the property described in the petition, policy being No. 2267; admits that the defendant association attached a loss clause to the policy, held by Elijah Van Pelt, in favor of The Union Central Life Insurance Company, thereby agreeing to the assignment of any loss or damage that Van Pelt might sustain under the policy, and agreeing to pay any loss to The Union Central Life Insurance Company of Cincinnati, and pleads the following:
"This Policy is hereby made payable in case of loss to the Union Central Life Insurance Company of Cincinnati, Ohio, Mortgagee, as its interest may appear upon the following terms and conditions: This Insurance as to the above named Mortgagee shall not be invalidated by the failure to pay a premium or assessment or by any act or neglect of Mortgagor, nor by the occupancy of the premises for purposes more hazardous than are permitted by the terms of this Policy, nor by any change in title or possession, nor by any foreclosure, except upon ten days notice to said Mortgagee, Provided, the said Mortgagee shall notify this Company of any change in ownership or increase of hazard which shall come to its knowledge."
The defense admits that Elijah Van Pelt fully performed all things incumbent upon him under the terms of the policy, and admits the dwelling house insured was on the 2nd day of April, 1932, totally destroyed by fire. As a defense defendant denies that Elijah Van Pelt was insured on policy No. 2267 at the time of the loss by fire of said dwelling house; that he, Van Pelt, on the 2nd day of December, 1931, conveyed all his right and title to said premises by deed of general warranty to J.C. Hill, and on the same day delivered said deed to said J.C. Hill. Defendant then alleges that said Elijah Van Pelt surrendered said policy to this defendant association prior to the fire. It further alleges as a defense that Hill, the grantee in the deed of Elijah Van Pelt, was at the time acting as agent of the plaintiff, The Union Central Life Insurance Company of Cincinnati, mortgagee; that the plaintiff company did not apply to the defendant association for insurance after receiving the deed from Elijah Van Pelt (the policies of the association are not transferable), and then charged that it concealed through its agent, J.C. Hill, that it was the owner of the premises, and had been such owner for four months, and had not notified defendant association of the change of title under its loss payable clause provision; that defendant was ignorant of any change of ownership until January, 1933, when so informed by Van Pelt; that it immediately upon learning of the change of title informed the plaintiff company, through Hill, its agent, of the change of title, and, therefore, denies it is indebted to the plaintiff in the sum of $3,500 or any other sum by virtue of the loss payable clause attached to said policy No. 2267.
The reply is to the effect that it did not apply to the defendant association for insurance after receiving the deed from Elijah Van Pelt; and it then alleges that Hill, who received the deed from Van Pelt, was not to accept the deed until he had the approval of The Union Central Life Insurance Company, the plaintiff, and that such approval was not given until November 1, 1932, being about seven months after the fire which destroyed the dwelling house. It also denied that Van Pelt had surrendered the policy to the defendant association four months prior to the destruction of the dwelling house.
There was some oral testimony taken in the case, of little moment, since the pleadings and exhibits, as we view it, present the question to the court as a matter of law.
It may be well to state here that there is no evidence of any surrender of policy No. 2267 by Van Pelt four months prior to the fire. Such surrender could only be considered under the fact that he had parted with the premises. The controversy, presented by the oral testimony, is as to when the deed conveying title to the plaintiff, The Union Central Life Insurance Company, took effect, plaintiff claiming it took effect December 2, 1932, when it approved the deed from Van Pelt to Hill, on November 29, 1932, when the deed from Hill to the insurance company was placed of record; defendant claiming the acceptance transferring title related back to the deed to Hill in December, 1931.
While it is suggested in the brief that the plaintiff insurance company made no claim to the insurance for almost a year after the fire, there is no equitable defense of laches set up in the case. This being a mutual association, the loss was payable by assessment, and the question might well have been raised.
Neither is the deed from Van Pelt to Hill claimed as a change of ownership to Hill which would work a forfeiture of the rights of the insurance company in the insurance fund under the "loss payable clause."
The question for determination, therefore, resolves itself into whether the taking over of the property by the mortgagee is such a "change of ownership" as would work a forfeiture under the loss payable clause. There is no forfeiture provision in the policy. The fact is, as suggested by the trial court, that the policy is exceptionally free from conditions. The policy does not provide that the insured must be the owner of the property, it does not provide for forfeiture for any reason, and there is no provision against alienation. The policy is very sweeping in its terms in favor of the validity of the insurance. The question arises under the "loss payable clause" rider only.
In our view of the case, we do not find it necessary to determine when the title passed to the plaintiff insurance company. Although not so deciding, we will consider that the title passed on the 2nd day of December, 1931, by the deed from Van Pelt to Hill, Hill being the agent of the plaintiff company.
It will be noted that the defendant insurance association does not contend that the transfer from Van Pelt to Hill, by the warranty deed, was a transfer of the ownership to Hill, an issue which might have been made between the defendant association and the plaintiff company. The decisive question in the case therefore is: Did the taking over of the property by the plaintiff insurance company, the mortgagee, by voluntary transfer, constitute such a change of ownership as would work a forfeiture under the "loss payable clause" attached to the policy as to change of ownership? The trial court, as indicated in its opinion attached to the brief, found for The Clinton Mutual Insurance Association on the proposition that the plaintiff company would not be entitled to the insurance due and payable to Van Pelt. The court stated: "Van Pelt ceased to have any interest in said real estate on the 2nd day of December, 1931. The contract between plaintiff and the defendant association was to pay plaintiff, as its interest might appear, anything due Van Pelt under the policy. As Van Pelt ceased to have any interest in the property four months before the fire, there is nothing due him, and therefore, nothing due plaintiff."
Under the earlier rule, based on the "loss payable clause," which simply allocated such part of the money to the mortgagee as his interest might appear, the court was correct. It was held that such clause provided merely for an allocation of the proceeds of the policy, and that it is simply an order by the insured to the company to pay a certain part of the money due him to the mortgagee by reason of his obligation to it. Therefore, anything that would void the policy in the hands of the mortgagor would also void it as to the mortgagee.
There has arisen in later years a loss payable clause known as the standard clause, which stipulates that in case the loss is payable to the mortgagee, his interest in the proceeds shall not be invalidated by the act or neglect of the mortgagor or owner of the insured property. The loss payable clause in question contains the stipulations of the standard clause. The uniform holding throughout the states seems to be to the effect that the standard clause creates a new and distinct contract between the mortgagee and the insurance company.
While the exact question concerning real estate has not been before the courts of Ohio as to change of ownership which would work a forfeiture, we have some cases which show the trend of the courts of this state. In Ohio Farmers Ins. Co. v. Hull, 45 Ohio App. 166, 186 N.E. 823, the court held in substance that the effect of the standard or union mortgage clause was to make a new contract of insurance between the mortgagee and the insurer, and to effect a separate insurance of the mortgagee's interest. To a like effect is the case of Savarese v. Ohio Farmers Ins. Co., 260 N.Y., 45, 182 N.E. 665, 91 A.L.R., 1341. There are many cases throughout the country to the same effect.
These rules effectually take the case under consideration out of the former rule under the "open clause provision," which merely appointed the payment of the proceeds of the policy. We think it well established that under the standard clause, the mortgagee has a contractual interest in the policy, and the case will be considered from that standpoint.
The provision against the change of ownership was evidently for the purpose of protecting the insurer in the event of the ownership passing into the hands of persons not acceptable to the insurance association, and thus incidentally increasing the hazard; that the insurance association had a right to know the person whom it was insuring as well as the property. The reason for the provision would not obtain under the standard clause since the insuring company knows the mortgagee whom it contracts to protect by attaching the rider. The reason for the provision not being present in cases like this one, we are of opinion that the change of ownership clause refers to the change to a third person, not a party in interest. The rule deduced from the unbroken line of decisions is to the effect that where the mortgagee comes into possession of the whole title by virtue of foreclosure or transfer, or taking possession of the premises, it is not such a change of ownership as is contemplated in the loss payable clause.
In the decisions the courts have indulged in lengthy analyses and arguments to sustain this position, and we will not engage in such analysis. Leading cases, however, on the subject are: Kimberley Carpenter, Inc., v. National Liberty Ins. Co. (Del.Super.), 157 A. 730, and many cases cited thereunder; Esch Bros. v. Home Ins. Co. of New York, 78 Iowa 334, 43 N.W. 229; Bailey v. American Cent. Ins. Co., 13 F., 250; Pioneer Savings Loan Co. v. St. Paul Fire Marine Ins. Co., 68 Minn. 170, 70 N.W. 979; Fort Scott Bldg. Loan Association v. Palatine Ins. Co., 74 Kan. 272; Southern State Fire Casualty Ins. Co. v. Napier, 22 Ga. App. 361, 96 S.E. 15; Continental Ins. Co. of N.Y. v. Rothholz, 222 Ala. 574, 133 So. 587, and many other cases. That the courts of Ohio are in accord therewith is indicated by the pronouncements in chattel mortgage cases. In the case of Washington Ins. Co. v. Hayes, 17 Ohio St. 432, 93 Am. Dec., 628, the mortgagor transferred mortgaged goods covered by the policy to the mortgagee, and the court states in the syllabus:
"Where a fire insurance policy contains a provision, that, if another insurance shall be made on the property thereby insured, not consented to in writing thereon, or if the property shall be sold, the policy shall be void — held:
"1. That if the property so insured was, at the time the policy was made, under a mortgage, and the policy, with the assent of the company making the same, was assigned to the mortgagee, the delivery of the possession and control of the property to the mortgagee subsequent to the date of the policy, is not such a sale as will invalidate the policy."
To the same effect is the holding in the case of West v. Citizens' Ins. Co., 27 Ohio St. 1, 22 Am. Rep., 294.
It is urged in the brief for defendant that it is a special type of insurance association, organized and operating under special sections of the Ohio General Code, and not under the usual sections pertaining to insurance companies. Counsel quote in their brief the last part of Section 9597, General Code, as follows: "But in no instance shall the power to insure against losses by fire or tornadoes be exercised to other than members thereof."
If the defendant insurance association was without power to place a "loss payable clause" rider on the policy, it ought not to be heard to say in this review that what it did do was ultra vires. Such a defense must be pleaded, and, moreover, an ultra vires contract which has been fully executed by one of the parties, and the other party has received the benefit of the contract, the party who has received the benefit is estopped to question the validity of the contract. The defendant insurance association did receive premiums on the contract, and it knew the conditions of the policy and the "loss payable rider" attached, and it admits in its answer that the insured performed all things which he was required to do. Moreover, we do not consider that the section in question, Section 9597, General Code, prohibits the placing of the "loss payable clause" on the policy. It did not insure the property belonging to the plaintiff insurance company. The plaintiff insurance company had a mortgage lien, which it was sought to protect by the fire insurance, and for that purpose it was not necessary that it be a member of the insurance association. Moreover, this question is answered in the case of Richards, Recr., v. Louis Lipp Co., 69 Ohio St. 359, 69 N.E. 616, 100 Am. St. Rep., 679. There it was contended that the statute prohibited anyone except members from recovering against the association. The court said in the opinion:
"There is no provision in the statute that a policy issued by a mutual protective association shall be void if the assured does not sign the constitution. It is only by inference that it can be said that it even would be voidable. To allow either party to the policy to set up his own wrong as a defense to an obligation incurred under the policy, where the policy has been issued and held in good faith as an indemnity and where premiums have been paid and received under it, is not only manifestly unjust, but contrary to settled rules of law."
The court then quotes from Tone v. Columbus, 39 Ohio St. 281, 48 Am. Rep., 438, that:
"`Want of power in the corporation may be waived, or an estoppel may arise from failure to assert it at the proper time.'"
If the defendant association could avoid payment in this case under the claim that a mutual association, organized under the special statute, has no power to place the "loss payable clause" rider on the policy to protect the mortgagee, it could avoid payment of any other policy whether there was a change of ownership or not. If it had no power to protect the mortgagee under the "loss payable clause" in this case, then it would not have that power in any other case. The claim is presented, we presume, as an argument to show that the relation between the insurer and the mortgagee cannot be contractual or give the mortgagee any interest in the insurance. This argument again fails to distinguish between the old form clause and the new standard form, which we find does create a contractual interest in the mortgagee in the policy, and we know of no law preventing a mutual company from obligating itself by attaching such a rider to the policy. In any event, as above stated, this is not made an issue by the pleadings.
Our conclusion is that the transfer to the mortgagee of the equitable interest by the insured is not such a change of ownership as would work a forfeiture of plaintiff's right to recover under the policy in question.
The judgment of the Court of Common Pleas of Clinton county is reversed, and judgment is entered in this court in favor of the plaintiff in error, The Union Central Life Insurance Company.
Judgment reversed and judgment for plaintiff in error.
ROSS, P.J., and MATTHEWS, J., concur.