Pike v. American Alliance Insurance

124 S.E. 161, 158 Ga. 686, 1924 Ga. LEXIS 328

Opinions

Atkinson, J.

In the case-of Scottish Union & National Insurance Co. v. Colvard, 135 Ga. 188 (68 S. E. 1097), the original record of file in this court shows the following facts. The owner of land on which a building was located obtained a loan of $3,000, for which she executed three promissory notes for $1,000 each and a security deed to the land. She subsequently procured a fire-insurance policy on the building in her name, to thfe amount of half of the loan, to which was attached a “New York mortgage clause,” similar to that stated in the questions propounded by the Court of Appeals, in favor of the lender. The building was destroyed by fire, causing a loss within the contemplation of the insurance policy. The insurance company investigated the loss, and caused the owner to incur trouble and expense. After doing this the insurer, denying liability to the owner, paid the full amount of the policy to the lender under its obligation as provided in the “New York mortgage clause,” and received from the lender an assignment of one of the notes and half interest in another and the security securing such debt. A separate assignment was executed by the lender, to the insurer, of'“all the right, claims, interest, choses or things in action, to the extent of fifteen hundred ($1,500.00) dollars paid them as aforesaid, which they may have against Mrs. L. M. McCroskey [the person as whose property the building was insured] or any other party, person, or corporation, who may be liable, or hereafter adjudged liable, for the burning or destruction of said property.” After such assignments the insurance company brought suit against the maker of the assigned notes, and prayed for a special lien on the land. The defendant pleaded that in the circumstances the payment to the lender was a discharge pro tanto of the debt, and that the insurer did not acquire any right over against defendant or the property for reimbursement. The insurer contended that it had never become liable to the owner for the amount of the loss, because: (a) after the policy of insurance was issued the insured made a contract of sale of the property without the consent of the insurer, the effect of which, under the provisions of the policy of insurance, was to render the contract void; (b) the insured had failed to furnish proofs of loss as provided in the contract of insurance; (c) the insurer had an agreement with the lender, commonly known as the “New York mortgage clause,” whereby the insurer could not avail itself, as to the lender, of the defenses mentioned in (a) and (b) above, but that under such agreement the insurer was entitled to take subrogation as to the money which should be paid by it to the lender. It pleaded-that, acting under such right of subrogation, it took a transfer of one half of the loan debt and the security deed from the lender, and was the bona fide holder of said indebtedness. As to these matters the judge, trying the case by consent without a jury, found for the defendant, and subsequently, refused the plaintiff’s motion for a new trial. That judgment was affirmed by this court on review. The language employed for the court in the headnotes was:

“1. If there was any breach of the stipulation in the policy prohibiting any change in the title, interest, or possession of the assured, the insurance company was estojDped from claiming a forfeiture on that ground, by reason of the fact that its adjuster, with full knowledge of the facts giving rise to such claim of forfeiture, demanded of and caused the assured to incur trouble and expense in furnishing an estimate of a builder showing the value of the property insured and destroyed by fire.

“2. Where a policy on the property of a mortgagor is made payable to the lender as his interest may appear, and the insurance company by separate agreement with the lender is obligated to pay the latter notwithstanding it may deny liability to the assured, with the right under such agreement to be subrogated to the rights of the lender against the assured, and pays the lender with a denial of liability to the assured, but is in fact at the time liable to the assured, the payment to the lender operates, at the time it is made, to extinguish pro tanto the debt of the assured to the lender; and in a suit wherein it is sought to óbtain against the assured a judgment on her notes transferred by the lender to the insurance company in consideration of such payment, the assured may plead the fact of payment, notwithstanding a failure to furnish proofs of loss, or to commence suit on the policy within the time prescribed therein, the payment to the lender having been made before the expiration of such time.”

In the 2d division of the opinion Holden, J., said: “Having determined that the insurance company was estopped from insisting that there was any forfeiture of the policy, and as the company was compelled to pay the lender in any event, payment by the insurance company to the lender operated as a payment on the debt of the insured to the lender, and operated at that time to discharge, to the extent of the payment, the debt of the assured to the lender. . . It was a settlement of the policy as far as concerned the assured, as well as the lender, and no suit by the assured on the policy was necessary. It follows that the assured, in a suit wherein the insurance company sought to enforce against her the notes transferred to it by the lender, could interpose in defense thereof a plea of payment, as she did in this case. See 4 Cooley’s Briefs on Ins. 3917.” Lumpkin, J., concurred with all the other Justices “in the principle stated in the second headnote,” but did not concur in the principle stated in the first headnote. It will be perceived from the foregoing decision that this court held in effect, that, under the facts of the case, there was a° liability by the insurer to the owner as whose property the building was insured, and that payment by the insurer to the lender under the New York mortgage clause was, as between these parties, a pro tanto discharge of the debt, and could be so pleaded by the insured in a suit instituted against her by the insurer as transferee of the debt owed to the lender. Upon this question the decision was concurred in by all the Justices, and is now binding authority upon this court. The subsequent decision in Peoples Bank v. Insurance Co., 146 Ga. 514 (91 S. E. 684, L. R. A. 1917D, 868), which failed to mention the above decision, had reference to a case in which the insurer was not liable to the person as whose property the building was insured, because that person obtained additional insurance on the property without the assent of the insurer, in violation of the contract, which under the provisions of the contract rendered the policy or contract void as to such person. Under those circumstances it was held that payment by the insurer to the lender and a transfer of the debt and security by the lender to the insurer, in virtue of the New York mortgage clause attached to the policy of insurance, conferred upon the transferee the right to enforce the debt against the borrower, or the person as whose property the building was insured. Under the facts of the ease the decision does not conflict with the ruling of this court in Scottish Union & National Insurance Co. v. Colvard, supra; for the decision in that case was predicated on the fact that the insurer was liable on its contract of insurance to the person as whose property the building was insured, impliedly recognizing that the rule would be different if the insurer was not so liable.

It follows, that, under the former rulings of this court if an owner of land on which there is a building obtains a loan and executes his notes for the amount and a deed to the property as security for the debt, and procures a contract of insurance in his own favor insuring the building against loss by fire, and causes the insurer to attach to the policy a New York mortgage clause in substance as stated -in the question propounded by the Court of Appeals, and'if after being so insured the building is destroyed and a loss ensues for which the insurer is liable to the person as whose property the building was insured, and in such circuin- ' stances the insurer pays the amount of the loss to tlie lender, asserting and claiming at the time of such payment that there is no liability to the person as whose property the building was insured, such payment will operate in favor of the borrower as a pro tanto discharge of the debt as against the lender, and the insurer will not acquire any equitable right of subrogation, or right by transfer of the notes and the security to maintain a suit against the borrower or the property, for the amount so paid to the lender. It does not appear from the questions propounded by the Court of Appeals that the insurance company made any contention that it was not liable to the person as whose property the building was insured on its contract of insurance, on account of mere change of ownership of the property; but it appears that the company contended that it was not liable to such insured, because the remote transferee of the insured feloniously burned the building. The exact language of the Court of Appeals, in stating the contention that was made by the insurance company, is: “and where the insurer, claiming .that, because of the burning of the house by K. as stated above, ‘there was no liability existing under the policy in question to the mortgagor or owners of the property.’ ” (Italics ours.) It further appears from the facts stated in the questions that the person so insured had nothing to do with the burning, but was innocent of the offense. In these circumstances the fact that the loss resulted from the criminal act of the remote transferee would not excuse the company from its liability to the person first insured. Under a proper construction of the questions propounded by the Court of Appeals, the questions (a), (b), and (c) are answered in the affirmative. The question (d) does not require an answer.

Anstoers in the affirmative.

All the Justices concur, except Gilbert and Sines, JJ., dissenting.