First Savings and Loan Ass'n v. American Home Assurance Co.

277 N.E.2d 638, 29 N.Y.2d 297, 327 N.Y.S.2d 609, 1971 N.Y. LEXIS 935

• Court: New York Court of Appeals
• Decided: November 24, 1971
• Status: Published

Opinions

Jasen, J.

The plaintiff, First Savings and Loan Association of Jersey City, New Jersey, holds a mortgage upon certain premises covered by an insurance policy issued by the defendant, American Home Assurance Company, and asserts its right to insurance proceeds by virtue of the standard mortgagee' clause contained in the policy. The owner of the premises procured an insurance policy, D7539681, from the defendant insurance company in the amount of $7,000 and paid the premium of $140 for a one-year term commencing on July 19,1968. Effective October 21, 1968, an endorsement was added to the policy reciting, “This endorsement [is] attached to and forming part of policy numbered below * * * D7539681 * * * In consideration of an additional premium of $119. it is hereby understood and agreed that insurance is increased from $7,000 to $15,000.” There is no dispute that the additional premium was never paid and that a written notice of cancellation, dated February 14,1969, to be effective February 25,1969, was mailed by the insurance company and duly received by the mortgagee. The cancellation notice stated: “ Cancelled for Non-payment of Premium * * * the policy designated below and issued to you, is cancelled * * * D7539681 ”.

A fire occurred on March 13, 1969, causing damage to the premises in the sum of $9,335. Plaintiff instituted this action to recover the sum of $2,563, representing defendant’s pro rata share of the original insurance coverage ■ ($7,000) on the premises.

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The sole issue presented on this appeal is whether the insurance policy in question was a divisible contract. Put another way, did the February 14, 1969 notice of cancellation affect the entire coverage under the policy, or did it apply, in effect, only to the increased coverage added by the endorsement to the original policy.

We conclude that the policy of insurance in question was not a severable contract and the cancellation of said policy, prior to the loss, terminated the entire contract of insurance. “No formula has been devised which furnishes a test for determining in all cases what contracts of insurance are severable and what are entire. Fundamentally and primarily, the question of divisibility or severability rests upon the question of intention of the parties deducible from the stipulations of the contract and the rules of construction governing the ascertainment of that intention. As a general rule, a contract is entire when by its terms, nature, and purpose, it contemplates and intends that each and all of its parts and the consideration therefor shall be common each to the other and interdependent. On the other hand, the contract is considered severable and divisible when by its terms, nature, and purpose, it is susceptible of division and apportionment. [Footnotes omitted.] ” (29 N. Y. Jur., Insurance, § 643.)

Williston, referring to divisible contracts, states that: “‘A contract is divisible where by its terms, 1, performance of each party is divided into two or more parts, and, 2, the number of parts due from each party is the same, and, 3, the performance of each part by one party is the agreed exchange for a corresponding part by the other party. ’ ” (6 Williston, Contracts [3d ed.], § 860, at pp. 253-254.)

Applying these principles, we conclude that the October 21, 1968 endorsement became, as it specifically provided, part of the original insurance contract. (17 Couch, Insurance [2d ed.], § 65.1 et seq.; Metzger v. Aetna Ins. Co., 229 App. Div. 2, 6; Rhine v. New York Life Ins. Co., 273 N. Y. 1, at pp. 15-16.) The endorsement increased the amount of coverage for the same property and the same risk, namely: damages sustained to the insured premises by fire. Upon the effective date of the endorsement, the insurance company became liable, in the event of a fire, for the full amount of $15,000, even though the additional premium of $119 was not remitted. This added coverage and liability thereunder continued to be in full force and effect for more than four months, ceasing only upon notice of termination for nonpayment of premium. In addition, the cancellation notice specifically referred to policy D7539681 in its entirety. Certainly, under such circumstances, it cannot be said the contract was divisible. (Ming v. Corbin, 142 N. Y. 334, at pp. 340-341.) The result, of course, would be different if the subsequently added endorsement to the policy extended the scope of the coverage to include a different type of insurance risk than that covered by the original policy. (Rosenthal v. Security Mut. Ins. Co. of N. Y., 28 N Y 2d 697; Donley v. Glens Falls Ins. Co., 184 N. Y. 107, 111; Schuster v. Dutchess County Ins. Co., 102 N. Y. 260.)

Moreover, plaintiff, a large banking institution familiar with insurance procedures, should not have been misled by the truthful recital that the cancellation was for nonpayment of premium, since the notice of cancellation, as stated before, specifically referred to the insurance policy in its entirety. In any event, the recital was prior to the amendment of section 167-b of the Insurance Law, effective September 1, 1969, which requires the insurer to state a reason for cancellation in its notice. “ [W]hen no reason for cancellation is required, the stating of a reason by the insurer is a matter for information only and is to be ignored if wrong or unwarranted.” (17 Couch, Insurance [2d ed.],§ 67:70.)

Accordingly, the order of the Appellate Division should be affirmed.

In addition to the insurance policy in question, two additional policies with other insurance companies, covering the same risk, were also in effect at the time of the loss.