Bishop v. Clay Fire & Marine Insurance

45 Conn. 430

• Court: Supreme Court of Connecticut
• Decided: January 15, 1878
• Status: Published

Opinion

Pardee, J.

This is an action upon a policy of insurance against loss by fire. The plaintiffs had a verdict; the defendants filed a motion for a new trial for alleged errors on the part of the court in the admission of evidence and the refusal to charge as requested; also a motion for a new trial for a verdict against evidence. The plaintiffs have filed a bill of exceptions (under the statute) based upon the refusal of the court to charge the jury that the decree of foreclosure hereinafter mentioned did not work any such change in the title of the plaintiffs as can impair their rights under the contract.

In 1874 the holders of the convertible bonds issued by the New Haven, Middletown & Willimantic Railroad Company, and secured by a second mortgage, were in the possession and use of the real and personal property of that corporation, and were operating the road through the agency of George H. Bishop and John N. Camp, the plaintiffs, who were the successors of the persons named as trustees in the mortgage deed; and, in particular, were in the possession and use of the freight depot in Middletown.

On December 17th, 1874, these trustees obtained insurance against loss by fire from the defendants; the contract containing the following words: “ do insure the trustees of the convertible mortgage of the New Haven, Middletown & Willimantic Railroad Company against loss or damage by fire to the amount of $2,000, for the period of one year, on their frame freight depot building occupied by them and situated near the corner of Main and Spring streets in the city of Middletown, Ct.”

In May, 1875, the holders of another series of bonds issued by the railroad company, and secured by the first mortgage upon its property, obtained a decree of foreclosure upon a petition in which the corporation, the holders of the convertible bonds, and all other persons having any interest in the .property, were made respondents. These were to redeem on or before the fourth Saturday of June, 1875, or be forever thereafter barred and foreclosed. They did not redeem; and the treasurer of the state' of Connecticut, who liad been named as trustee in the mortgage deed, in behalf of the cestuis que trust, took possession of said property, including said freight building, and for their benefit operated the road, appointing the plaintiffs as his agents in executing his trust, until July 8th, 1875, when he conveyed the property by deed to the Boston & New York Air Line Raih-oad Company; the General Assembly of this state having at its May session, 1875, incorporated by that name the bondholders for whom he held the trust. Thereupon the last named corporation went into the possession and use of said property, including said building, and for itself operated the road; the agency of the plaintiffs in respect to the road ceasing on August 1st, 1875. This freight building was destroyed by fire on the 14th day of August, 1875, at which time it was in charge of an agent appointed by the Boston & New York Air Line Railroad Company.

The contract of insurance upon which this suit is brought provides in the first section that “ if the property be sold or. transferred, or any change take place in title or possession, whether by legal process or judicial decree or voluntary transfer or conveyance, * * this policy shall be void;” and in the fifth, that “when property has been sold and delivered or otherwise disposed of, so that all interest or liability on the part of the assured herein named has ceased, this insurance on such property shall immediately terminate.” When the policy was executed, the New Haven, Middletown & Willimantic Railroad Company held the equity of redemption subject to the two mortgages; bondholders secured by the second mortgage, under an arrangement with those secured by the first, were in the actual possession and use of the building; the contract was to insure it as their property; before • the loss occurred a judicial decree extinguished the title previously held thereto either by the railroad company or the convertible bondholders; title, right to possession, and possession, had passed to the first bondholders, and from these last by voluntary conveyance to a new corporation; and this without notice to or consent of the defendants. Precisely that had occurred which both parties had stipulated should make void the contract of insurance. As a general law governing human conduct, owners of property are presumed to use some degree of care in protecting it; the insurers made this law their ally by providing that during the life of the policy the insured should preserve some right in or to the property, and thus be interested in guarding it from destruction by fire; when the judicial decree entirely divorced them from it, its preservation or loss became alike immaterial to them. Thus, the vital condition of the contract was broken, and the court should have instructed the jury that, the foregoing facts being proven, the plaintiffs were not entitled to maintain their action; and this, irrespective of the fact that the insurers knew when they issued the policy that the insured were second mortgagees. The willingness of the defendants to insure the plaintiffs in their qualified equitable interest does not bind them to stand as their insurers when they have ceased to have any interest at all.

After the holders of the seco’nd mortgage bonds had taken possession of the property, the plaintiffs, being successors of the trustees named in the mortgage, managed the road; while performing this service, they as individuals advanced money and assumed obligations for its protection and maintenance to the extent of more than eighty thousand dollars. In the decree of foreclosure hereinbefore mentioned this indebtedness was recognized, and by agreement between them and the other parties in interest payment thereof was secured by making it a lien upon the property to take precedence of the first mortgage, to be discharged from the first earnings of the road. Accepting the claim of the plaintiffs that their advancements became as matter of law the first lien upon the property from the moment they were made, such lien was to them in their individual capacity; their interest as lienors was wholly distinct in origin from that of the convertible bondholders; either one could have been destroyed without affecting the other; and we are unable to find in the language of the contract insuring the title of “the trustees of the convertible mortgage of tho Now Haven, Middletown & Willimantic Railroad Co.,” inclusion of or protection for any interest which the plaintiffs as individuals might have had in the building. Moreover, they made their advancements solely upon the credit of the property in their keeping, and not at all upon the personal credit of the unknown and ever changing body of holders of coupon bonds transferable by delivery; these had assumed no personal obligation to them; and when these were foreclosed and barred from all ownership the plaintiffs followed the property, and obtaining from the court a first mortgage of record thereon, accepted that as the security for their loan; from that time onward these foreclosed bondholders not only had no right, title or interest in or to the property, but no responsibility for the plaintiffs’ personal advances; it was quite immaterial to them when or how these were repaid; for being repaid the first mortgagees had the property; and not being paid the plaintiffs as individuals took it. The second bondholders had no insurable interest remaining in them.

Again, the plaintiffs argue that parol evidence is admissible for tho purpose of showing that they insured their individual, personal interest in the building, upon the principle that trasteas, factors, and other representatives of third parties, must thus explain, in order to secure the benefit of their policies.

Whenever insurers take risks upon property in the keeping of a factor without requiring the name of the owner, or in the possession of a trustee without requiring the name of the cestui que trust, or an interest in a representative name without a specific description as to the ownership, they contract to subject themselves to the admission of parol evidence for the purpose of determining the person to receive indemnity if loss occurs. But, in the case before us the defendants did not insure the plaintiffs as trustees in general terms and leave to parol evidence to point out the cestui que trust; they required and received an explicit declaration from the plaintiffs that they desired the insurance in their capacity as trustees for the convertible bondholders, and that it was the interest of these last in the property which they sought to protect; and the plaintiffs accepted the contract .wherein it was thus written, written with such particularity and distinctness as to give no place for doubt. The parol evidence offered for the purpose of eliminating from the contract the name of the party for whose benefit it was expressly made and substituting another, should have been rejected.

Upon the trial the plaintiffs offered evidence for the purpose of showing "that it had been the custom of the agent who issued the policy to notify, in behalf of the defendants, persons insured that a change of title would necessitate a transfer of the policy, and that this" had been inadvertently overlooked in the present case. The defendants objected, but the court admitted it. The agent testified that he had acted for the defendants from the summer of 1874 to the close of 1875, but could not mention an instance of such notice. This evidence falls short of establishing the existence of a custom having the qualities of uniformity and universality in the degree necessary to enable it to support the presumption that this contract was made in subservience to it, and to override precise written stipulations. The verdict based upon it must be set aside.

A new trial is granted.

In this opinion Park, O. J., and Loomis, J., concurred. • Carpenter and Granger. Js., dissented.

Carpenter, J.

I am not able to concur in the conclusion to which a majority of the court have come in this case.

The property insured by the policy upon which this suit is brought formerly belonged to the New Haven, Middletown & Willimantic Railroad Company. All the property of the company was subject to two mortgages, the first to the state treasurer to secure certain bondholders, and the second to trustees to secure other bonds called convertible or second mortgage bonds.. The trustees took possession of the road and all its property under the second mortgage. The policy in suit was issued to the trustees in December, 1874, by which the freight depot in Middletown was insured. At that time the trustees were operating the road nominally for the benefit of the second mortgage bondholders. In June, 1875, the first mortgage was foreclosed. That decree extinguished the right of the bondholders under the second mortgage, but the claim of the trustees for expenses incurred in operating the road, making repairs, &c., was not foreclosed. It was agreed by all parties interested that such expenses, amounting to over $83,000, should be regarded as a lien upon all the property of the company, and should take precedence of the first mortgage, and it was so provided in the decree. After the decree became absolute the state treasurer took possession of the road in the interest of the holders of the first mortgage bonds, and appointed the plaintiffs to superintend and manage its affairs. On the 8th of July, 1875, the road and all it? appurtenances were sold to the Boston & New York Air Line Railroad Company. The plaintiffs continued to manage the road until August, when, without their consent, and without their previous knowledge, they were displaced and one Turner was appointed superintendent. A few days later, August 14th, 1875, the building insured was totally destroyed by fire. Upon these facts the jury returned a verdict for the plaintiffs. The defendants' insist that the verdict should be set aside, as being against the evidence in the cause, for two reasons, first, that the evidence shows that there had been a change of title to the property, and second, a change of possession; either of which it is claimed rendered the policy void.

Let us' examine those reasons.

1. Title. It is not denied that the plaintiffs at the time the policy issued had an insurable interest in the property insured. We will notice particularly what that interest was, and that will assist us in determining whether there has been any change. They did not insure as individuals, but as .trustees. As such they had the possession and use of the road and all its property, including the depot building, insured. All the receipts and income from the property constituted a fund in their hands, which they held in trust, not merely for the holders of the convertible bonds, but for other purposes. There are three classes of creditors who have a possible interest in this fund: — 1st. Those having claims for expenses and repairs. 2d. The holders of the first mortgage bonds; and 3d. The holders of the convertible bonds. These do not stand upon an equal footing. The first must be paid in full before anything can be paid to the second or third; and the interest on the first mortgage bonds must be paid in full before anything can be paid on the second mortgage bonds. Inasmuch as, during the lifetime of this policy, the expense account exceeded the entire income by more than $83,000, it is obvious that neither class of bondholders had any real interest in this fund, for the reason that it was not sufficient to reach either class. The plaintiffs, therefore, in reality, were trustees for the first class alone; and the insurance in the interest of this fund is really in the interest of these creditors. Thus it will be seen that these plaintiffs represent parties entirely distinct from either class of bondholders, and are not in reality trustees for the bondholders at all so far as this fund is concerned or this insurance. The parties represented by the plaintiffs are entitled to a priority in point of right, not only in the income of the trust property, but also, in equity, in the trust property itself. This right was distinctly recognized by the first mortgagees, and it was provided in their decree of foreclosure that these' claims should be a first lien upon the entire property.

The plaintiffs therefore, as trustees in a limited or qualified sense, as above explained, might with propriety insure this building for the benefit of those claims; but if otherwise, and. they are to be regarded as trustees in a broader sense — representing the bonds as well as these claims — still the result would be the same. The extinction of the claims of the mortgagees will not vitiate the insurance so long as the claims of other parties remain good. Whether the insurance money when collected is payable to one person or another is a matter of no concern to these defendants.

My conclusion therefore is that the interest or title of the plaintiffs remained at the time of the fire substantially as it was at the time the policy issued.

Another inquiry in this part of the case is, whether any change of title in other parties concerned will vitiate the policy.

There are two clauses in the policy which should be considered in this connection. The first is found in the first condition, and reads as follows: — “Or if the property be sold or transferred, or any change take place in title or possession, whether by legal process, or judicial decree, or voluntary transfer or conveyance, this policy shall be void.” I think this clause has reference to the thing insux’ed ; whether it is the property itself, as where the insured has the absolute title, or an interest in the property less than a complete title. In either case the insurance, if the property insured, whatever it is, is sold, or if in any other manner the insured is divested of his title, becomes void. In the presexxt case -no such change has takeix place.

I think this clause has no reference to any title or interest which other parties may have in the property. If so no change in such title or interest will operate under this clause to defeat the policy. In x'espect to possession it may be differexxt, especially if the change of possession materially affects the risk.

The secoxxd clause is in the fifth condition, axxd is as follows: — “ If tlie interest of the assured in the property be any other than the entire, unconditional and sole ownership of the property, for the sole use and benefit of the assured, or if the building insured stands on leased ground, it must be so represented to the company, and so expressed in the written part of this policy, otherwise the policy shall be void. When - property has been sold and delivered, or otherwise disposed of, so that all interest or liability on the part of the assured herein named has ceased, this insurance on such propérty shall immediately terminate.” This whole section taken together seems to have a direct application to the present case. The interest of the assured in the property is less than the “entire, unconditional and sole ownership;” and by clear implication any conveyance or disposition of the property, which does not terminate the interest of the assured, does not affect the policy. There has been no conveyance or disposition of this property which impairs the interest of the plaintiffs. There is nothing therefore in this provision of the policy which makes it void.

2. Was there a change of possession? The plaintiffs remained in possession as trustees until June, when the state treasurer took possession under the first mortgage. He appointed the plaintiffs his agents to operate the road, and as such they were in possession .until July 8th, when “the road was sold to the Boston & New York Air Line Railroad Company. After the sale they continued operating the road as before until August. Early in August they were displaced and one Turner was appointed superintendent in their stead, but without the knowledge or consent of the plaintiffs. In a few days after this change was made the fire occurred.

The instruction to the jury was of such a character that they found, and I think, upon the evidence, properly found, that the possession of the plaintiffs under the state treasurer and under the new corporation, was a continuance of their possession, or at least that it was not such a change of possession as affected the policy. Mr. Camp, one of the plaintiffs, testified as follows on this point: — “Our possession as trustees under the convertible mortgage ended, I should say, in June, 1875. Bishop was superintendent afterwards. He kept on. After we ceased to hold as trustees we acted for Mr. Raymond, state treasurer. I held on till early in August, 1875. I think I left Bishop in charge as superintendent when I left on my vacation. * * By general arrangement Bishop and I were to act as agents of the state treasurer in operating the road. * * Wo kept running the road-as we had done. I don’t know whether we acted as agents or trustees. * * The funds were kept in my name as agent while we acted for the state treasurer. Before they were kept in my name as trustee. There was no other change when we acted for him, no change in the general management, none in the books.”

Taking all this evidence together I think he meant that their trusteeship for the holders of the second mortgage bonds ended in June. Their interest as trustees in respect to the expense account manifestly continued. I think it is equally clear that they did not intend to relinquish any security they held for the payment of those claims. The jury therefore might- fairly presume that they intended to retain possession to protect their interests in that behalf. There was no conflicting evidence and I think the action of the jury cannot be complained of.

Tn respect to the appointment of Turner as superintendent, the jury were told “that if they found that the plaintiffs were unlawfully and forcibly displaced by the Boston & New York Air Line Railroad Company, and were thus temporarily put out and kept out of possession of the depot by force and against their mind and will, their remaining out of possession for a short time would not necessarily make them out of possession within the meaning of the policy; but that if they voluntarily went out of possession, and consented to yield up the possession of the depot to the new Air Line Company, then this would be a change of possession which would be sufficient to defeat their recovery.”

Under this charge the jury must have found that the plaintiffs were “ temporarily put out and kept out of possession of the depot, by force and against their mind and will.” There was some evidence at least to support this finding, and there was little or none to show that they “voluntarily went out of possession, and consented to yield up the possession, &c.” Mr. Camp testified thus: — “Bishop and I were not consulted in advance and my consent not given to the displacement of Bishop by Turner. I was not asked about it and Bishop was not so far as I know.” Again, on the cross-examination he says: — “ I did not know but I should take possession, for when we gave up possession I understood from my counsel that we could get possession again any time in twenty-four hours.” This clearly indicates not a voluntary but involuntary giving up of possession. The fact that they thus consulted counsel in respect to their rights is significant. On the whole I am inclined to think that the jury under this instruction came to a correct result.

I am also inclined to the opinion that the court below correctly charged that an unlawful and forcible displacement of the plaintiffs, under the circumstances, did not terminate the policy. They were certainly entitled to a reasonable time in which to reinstate themselves, and I think we cannot say that there had been any unreasonable delay.

Moreover, Mr. Bacon, the man who was in the actual charge of the depot, had the charge and control of it from the time the policy issued until the building was destroyed. It is apparent therefore that the nominal change of possession did not increase the risk, and that the objection to a recovery now urged is purely technical.

It is further objected that the plaintiffs cannot recover because of their personal claims; and it is suggested that their interest as trustees has been converted into a personal interest. That is not, as I regard it, a correct view of the case. The facts show that a small part of the expenses of the trustees was for personal services and advancements. A large portion of it, exceeding one-half, was for liabilities incurred and assumed, and not paid when the decree was ■ assed, in June, 1875; and there is no evidence that they iad been paid at the time of the fire. Now if it be assumed that the plaintiffs cannot hold' this policy as security for their personal claims, still their liability to other parties continues, and that keeps alive their trusteeship, and their official interest in the policy.

But aside from that I think there is no force in this objection. When the fire occurred the plaintiffs, as trustees, were owing |83,000. This policy then became a claim, and was a part of the assets in their hands to be applied in payment of that indebtedness. A part of that indebtedness was due to themselves personally and a part to other parties. I think they are entitled to collect this policy; and when collected, whether paid to one- creditor or to another, to themselves personally or to others, can make no possible difference.

In this opinion Granger, J., concurred.