Summary
In George H. Olmstead Co. v. Metropolitan Life Ins. Co., 118 Ohio St. 421, 161 N.E. 276, the court was called upon to construe the clause.
Summary of this case from General Credit Corp. v. Imperial Cas. Indem. Co.Opinion
No. 20825
Decided April 18, 1928.
Insurance — Construction of contract — Conflicting judicial interpretations conclusive that clause ambiguous — Language construed most strongly against party selecting it — Standard mortgage clause a condition and not covenant.
1. Where the language of a clause used in an insurance contract is such that courts of numerous jurisdictions have found it necessary to construe it and in such construction have arrived at conflicting conclusions as to the correct meaning, intent and effect thereof, the question whether such clause is ambiguous ceases to be an open one.
2. The rule that ambiguous language is to be construed most strongly against the party selecting the language and most favorably toward the party sought to be charged, is especially applicable to contracts executed subsequently to such conflicting judicial constructions.
ERROR to the Court of Appeals of Cuyahoga county.
The parties occupy the same position here as in the trial court. The plaintiff is a partnership engaged in business as insurance agent in the city of Cleveland. The defendant is a foreign corporation and is a mortgagee under a mortgage executed by the Winton Hotel Company upon property in the city of Cleveland, known as the Winton Hotel. The action was to recover from the defendant insurance premiums on fire insurance policies issued by various insurance companies, represented by the plaintiff, on the Winton Hotel property, which policies ran to the Winton Hotel Company with mortgage clauses to the defendant.
The cause was tried to the court upon a stipulation. The pertinent facts appearing by the admissions of pleadings and the stipulation are:
That both the Winton Hotel Company and the Winton-Olmstead Company, which by the terms of its lease from the Winton Hotel Company was obligated to pay the premiums on the policies in question, defaulted payment, and payment was made to the various insurance companies by the plaintiff, within 60 days after the policies were issued and delivered, without notice to or demand upon the defendant for payment. That the insurance policies in question were delivered to the defendant on the 15th day of December, 1923, and demand upon the defendant for payment of premiums was first made on January 22, 1925, and that upon that day the defendant returned the insurance policies for cancellation, this action being to recover for premiums earned to that date and paid by the plaintiff. That the mortgage clause in each policy of insurance was the standard mortgage clause, and in the following words:
"Loss or damage, if any, under this policy, shall be payable to __________ as __________, mortgagee [or trustee] as interest may appear, and this insurance, as to the interest of the mortgagee [or trustee] only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property, nor by any foreclosure or other proceedings or notice of sale relating to the property, nor by any change in the title or ownership of the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy: Provided, that in case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee [or trustee] shall, on demand, pay the same.
"Provided, also, that the mortgagee [or trustee] shall notify this company of any change of ownership or occupancy or increase of hazard which shall come to the knowledge of said mortgagee [or trustee] and, unless permitted by this policy, it shall be noted thereon and the mortgagee [or trustee] shall, on demand, pay the premium for such increased hazard for the term of the use thereof; otherwise this policy shall be null and void.
"This company reserves the right to cancel this policy at any time as provided by its terms, but in such case this policy shall continue in force for the benefit only of the mortgagee [or trustee] for ten days after notice to the mortgagee [or trustee] of such cancellation and shall then cease, and this company shall have the right, on like notice, to cancel this agreement.
"Whenever this company shall pay the mortgagee [or trustee] any sum for loss or damage under this policy and shall claim that, as to the mortgagor or owner, no liability therefor existed, this company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made, under all securities held as collateral to the mortgage debt or may at its option, pay to the mortgagee [or trustee] the whole principal due or to grow due on the mortgage with interest, and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities; but no subrogation shall impair the right of the mortgagee [or trustee] to recover the full amount of __________ claim."
That the mortgage from the Winton Hotel Company to the defendant contained the following clause:
"And the said party of the first part (the Winton Hotel Company), its successors, legal representatives and assigns, further covenant and agree to keep the building on said premises constantly insured for the benefit of the party of the second part (the Metropolitan Life Insurance Company) against loss by fire in such manner and in such companies, and for such amounts, as may be satisfactory to the party of the second part until the debt hereby secured is fully paid, and to keep such policies constantly assigned or pledged to the party of the second part, and to deliver renewals thereof to the said Metropolitan Life Insurance Company at its home office in New York City one week in advance of the expiration of the same, stamped 'paid' by the agent or company issuing the same. In the event that such party of the first part, its successors, legal representatives or assigns, shall for any reason fail to keep the said premises so insured or fail to deliver the policies of insurance to the said party of the second part, or fail to pay the premiums thereon, party of the second part, if it so elects, may have such insurance written and pay the premiums thereon and any premiums so paid shall be secured by this mortgage and repaid by the party of the first part, its successors, legal representatives, or assigns, within ten days after payment by the party of the second part. In default thereof the whole principal sum and interest, and insurance premium with interest on such sum paid for such insurance from the date of payment may be and shall become due at the election of the party of the second part, its successors or assigns; anything herein to the contrary notwithstanding."
That the defendant did not know prior to or about the date of the demand that the premiums had not been paid by the Winton Hotel Company or the Winton-Olmstead Company.
The trial court found for the plaintiff and rendered judgment against the defendant for the full amount of the earned premiums, with interest from the date of the demand. The Court of Appeals reversed the judgment of the trial court and entered final judgment for the defendant. Error is prosecuted here.
Messrs. Davis, Young Vrooman, for plaintiff in error.
Messrs. Cook, McGowan, Foote, Bushnell Burgess, for defendant in error.
The sole question considered by this court is whether the standard mortgage clause is to be construed as a covenant or whether it is to be construed as a condition. If the language of the clause is plain and unambiguous it must be given its plain and unambiguous meaning, and no occasion or justification for its construction by the court arises. If it is ambiguous and reasonably susceptible of two or more constructions, then it becomes the duty of the court to construe it most strongly against the party preparing the contract and selecting the language, and most favorably toward the party sought to be charged because of it. Mumaw v. Western Southern Life Ins. Co., 97 Ohio St. 1, 119 N.E. 132; Great American Mutual Indemnity Co. v. Jones, 111 Ohio St. 84, 144 N.E. 596, 35 A.L.R., 1023. And since in the instant case the plaintiff, in whatever capacity it chooses to characterize itself, must stand in the place of the contracting insurance companies, and its right must be measured by the right that the insurance companies would be entitled to assert were they seeking to recover the premium, the plaintiff is in the position not only of having prepared the contract and selected the language used in it, but also in the position of seeking to charge the defendant with an obligation under it, and therefore, if the language is ambiguous, both favors will obtain toward the defendant.
The trial court interpreted this standard mortgage clause as a covenant. The Court of Appeals interpreted it as a condition. So far as our investigation has gone the clause has not been interpreted by other courts in Ohio. In 1891 the Supreme Court of North Dakota construed this same mortgage clause as a covenant. St. Paul Fire Marine Ins. Co. v. Upton, 2 N.D. 229, 50 N.W. 702. In 1894 the Supreme Court of South Dakota construed the clause as a condition. Ormsby v. Phoenix Ins. Co., 5 S.D. 72, 58 N.W. 301. In 1898 the Supreme Court of Kansas construed the clause as a covenant. Boston Safe Deposit Trust Co. v. Thomas, 59 Kan. 470, 53 P. 472. In 1919 the Court of Appeals of Missouri construed the clause as a condition. Trust Co. of St. Louis County v. Phoenix Ins. Co., 201 Mo. App., 223, 210 S.W. 98. In 1914 the Supreme Court, Appellate Division, of New York, construed the clause as a condition. Coykendall v. Blackmer, 161 App. Div. 11, 146 N.Y. S., 631. In 1917 the Supreme Court of Rhode Island construed the clause as a condition. Home Ins. Co. v. Union Trust Co., 40 R.I. 367, 100 A. 1010, L.R.A., 1917F, 375. In 1922 the Court of Civil Appeals of Texas construed the clause as a condition. Johnson, Sansom Co. v. Fort Worth State Bank, 244 S.W. 657. In 1926 the District Court of Appeal of California construed the clause as a condition. Schmitt v. Gripton, 77 Cal.App. 429, 247 P. 505. The same year the Supreme Court of Wyoming construed the clause as a condition. Farnsworth v. Riverton Wyoming Refining Co., 35 Wyo. 334, 249 P. 555, 47 A. L. R., 1114. In 1927 the Supreme Court of North Carolina construed the clause as a condition. Whitehead v. Wilson Knitting Mills Co., 194 N.C. 281, 139 S.E. 456.
Without analyzing, approving, or disapproving the logic of these several decisions or attempting to say where the weight of authority prevails, the fact that such respectable authority is in irreconcilable conflict, and was so long prior to the execution of the insurance contracts here under consideration, coupled with the fact that the lower courts in the instant case are in disagreement as to whether the clause is a covenant or a condition, presents such persuasive argument of the ambiguity of the clause that if this court were in accord as to the unambiguity of the clause it would hesitate to so declare. However, if this clause were here for consideration as an initial question, we could not find it to be otherwise than ambiguous. Having reached the conclusion that the clause is ambiguous, and reasonably as susceptible to a construction as a condition as it is to a construction as a covenant, no other course presents itself than a construction most strongly against the party that selected the language and most favorably toward the party sought to be charged by it. Such a construction requires an affirmance of the judgment of the Court of Appeals.
Judgment affirmed.
MARSHALL, C.J., DAY, ALLEN, KINKADE, JONES and MATTHIAS, JJ., concur.