Summary
In Prudential Ins. Co. v. Franklin Fire Ins. Co., 180 S.C. 250, 185 S.E. 537, the court held: "* * * the provision that `the mortgagee shall, on demand, pay' the premium, is a condition and not a covenant.
Summary of this case from General Credit Corp. v. Imperial Cas. Indem. Co.Opinion
14286
May 4, 1936.
Before SHARKEY, J., Civil Court, Florence, June, 1935. Affirmed.
Action by Prudential Insurance Company of America against Franklin Fire Insurance Company of Philadelphia. From a judgment for plaintiff, defendant appeals.
The order of Judge Sharkey, requested to be reported, follows:
This is an action which involves the construction of a New York standard form of mortgagee clause attached to a policy of fire insurance which was issued by the defendant. The plaintiff here is the mortgagee. The action is for the recovery of a loss alleged to have been sustained under the policy. The following facts are undisputed:
The policy involved was issued by defendant on March 3, 1932, to Ada R. Turner, administratrix, insuring her against loss by fire in the sum of $3,200.00. The policy covered a number of buildings located on premises over which plaintiff held a mortgage. Attached to the policy at the time of issuance was a New York standard mortgagee clause making any loss under the policy payable to plaintiff, as mortgagee, as its interest may appear. On April 12, 1934, one of the buildings covered by the policy was totally destroyed by fire, with a resulting loss of $450.00.
A premium note had been given by the insured to defendant, payable in four annual installments of $55.60 each on March 1, of each of the years 1933, 1934. Apparently the premium note installment due on March 1, 1933, was paid by the insured. The installment maturing on March 1, 1934, however, was not paid either by the insured or by the mortgagee. While payment of this premium was in default, the loss referred to above occurred — on April 12, 1934.
No notice of cancellation of the policy or of any intention to cancel was ever given the plaintiff by the defendant.
The case came on for trial at the June, 1935, term of this Court. It having developed at the trial that all the foregoing facts were either specifically admitted or else were uncontroverted, I ruled that the only question involved was one of law, and therefore withdrew the case from the jury and took it under advisement.
The only disputed fact in the case related to the question of whether or not notice was given to the plaintiff by the defendant demanding payment of the premium which fell due on March 1, 1934. Under a different view of the case, it would have been necessary, as contended by plaintiff's attorney, to have submitted to the jury whether demand for payment of the premium was made on the plaintiff, and as to whether or not it had a reasonable period of time after receipt of notice, if such was given, within which to make payment of the premium. The construction, however, which I place upon the two pertinent sections of the mortgagee clause renders these questions immaterial.
As stated, there are two sections of the New York standard mortgagee clause which require interpretation in connection with the question before the Court in this case. They are as follows:
"And 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. Also, 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."
The instant case presents an entirely new question so far as the decisions of this State disclose. The decisions of a number of other jurisdictions have passed upon controversies involving a construction of the New York mortgagee clause, but these cases all appear to have involved the question of liability of the mortgagee for payment of the premium, rather than the question of liability of the insurer to the mortgagee for a loss under the policy. In the latter class of cases the distinction has always been drawn between a condition and a covenant, and the great weight of authority is to the effect that the provision that "the mortgagee shall, on demand, pay" the premium, is a condition and not a covenant. That is to say — the language so construed does not create such a contract or covenant on the part of the mortgagee as would support a cause of action in behalf of the insurer for the recovery from the mortgagee of the unpaid premium. On the other hand, the fact that this provision must be construed as a condition can only mean that upon its breach by the mortgagee, the right then becomes vested in the insurer to cancel the policy because of the failure of the mortgagee upon demand to pay the premium. But this right can only be exercised by the insurance company after a strict compliance with the terms of the agreement between it and mortgagee.
The mortgage clause constitutes an independent agreement between the insurance company and the mortgagee. It must be interpreted in such manner as to carry out the expressed intention of the parties and to that end the entire clause must be considered.
In this case the defendant (insurer) failed to give to the plaintiff (mortgagee) notice of cancellation of the policy, an act which it was clearly in duty bound to perform under the cancellation clause of the agreement. The plaintiff having received no notice of cancellation, had no opportunity of protecting itself by procuring other insurance within the ten-day period provided for in the agreement. It would be inequitable to hold, under the circumstances, that the insurer should be entitled to take advantage of its own delinquency and thereby defeat plaintiff's claim under the policy.
It necessarily follows that plaintiff is entitled to the relief prayed for, subject, however, to a deduction of the amount of the unpaid premium.
In this connection the defendant in its answer invokes the following provision of the policy: "In settlement of a loss under this policy, this company may deduct therefrom the entire amount of any unmatured note, given in whole or part as a consideration of this policy, whether such note is payable in installments or otherwise." This agreement constituted a valid and binding contract between the insured and the defendant, and the plaintiff, as mortgagee, was equally bound by its terms upon becoming a party to the transaction when the policy was assigned to it. However, defendant is entitled — as a deduction — to no more than the amount of premiums due under this particular policy. The policy itself recites an installment note of $222.40, payable in four annual installments for the years 1934, 1935, remain unpaid. The note which was introduced in evidence is in the sum of $263.88, payable in annual installments of $65.97 each. Apparently there was included in the note premiums for other insurance which is not involved in this controversy. The rights of the defendant must, therefore, be limited to the amount actually due under the policy now before the Court.
It is, therefore, ordered that plaintiff have judgment against the defendant in the sum of $450.00, with interest thereon from June 12, 1934, subject to a deduction of $166.80, with interest thereon from March 1, 1934, which is the sum of $291.28.
Messrs. Bridges Oulla, for appellant, cite: Notice of cancellation: 109 S.C. 112; 95 S.E., 341; 112 S.C. 422; 100 S.E., 152. As to presumption that addressee received letter: 119 S.C. 402; 112 S.E., 444; 115 S.C. 330; 105 S.E., 704; 138 S.C. 208; 136 S.E., 230; 121 S.C. 378; 113 S.E., 478; 139 S.C. 41; 137 S.E., 214. Payment of premiums: 249 Pac., 555; 47 A.L.R., 1114; 47 A.L.R., 1126; L.R.A., 1917-F, 375; 100 A., 1010; 170 S.E., 786; 194 N.C. 281; 139 S.E., 456; 56 A.L.R., 674; 247 P., 505; 162 N.E., 641; 7 S.W.2d 52; 210 S.W. 98; 154 S.C. 415; 153 S.E., 741; 13 C.J., 606; 124 S.C. 280; 117 S.E., 539. Contracts: 6 R.C.L., 225; 173 Fed., 855; 35 L.R.A. (N.S.), 1; 121 Fed., 609; 36 N.W., 608; 15 N.E., 391; 160 Fed., 596; 170 N.C. 315; 86 S.E., 1051; 102 S.C. 227; 85 S.E., 1064; 76 S.C. 297; 35 S.C. 271; 136 S.C. 448; 138 S.E., 415; 125 S.E., 325; 118 S.E., 610; 166 S.C. 150; 164 S.E., 605; 173 S.C. 256; 175 S.C. 510.
Messrs. J.P. McNeill, Jr., and W. Stokes Houck, for respondent, cite: As to evidence of mailing letter: 171 Wis. 594; 177 N.W., 881; 25 A.L.R., 5; 139 Minn., 246; 166 N.W., 222. As to covenant on part of mortgagee to pay premium: 134 Kan., 838; 8 P.2d 305; 83 A.L.R., 100; 53 Pac., 472.
May 4, 1936. The opinion of the Court was delivered by
This action by the Prudential Insurance Company of America, as plaintiff, against the defendant, the Franklin Fire Insurance Company of Philadelphia, was commenced in the County Court of Florence, by service of the complaint, July 16, 1934. In its complaint in the cause the plaintiff alleged that the defendant issued its policy of fire insurance, dated March 3, 1932, to Ada R. Turner, administratrix, in the sum of $3,200.00, covering certain buildings situate upon premises over which the plaintiff held a mortgage; and further alleged that on April 12, 1934, while the said policy of insurance was in full force and effect, one of the buildings, No. 2, described as a dwelling house, upon which there was $450.00 insurance, was totally destroyed by fire; that a New York standard mortgagee's clause had been attached to the policy in question at the time of its issuance in favor of the plaintiff and that the said amount, $450.00, was due the plaintiff by the defendant; that said amount having not been paid, judgment was demanded against the defendant for the said sum, together with interest thereon from June 12, 1934. In its answer, as a first defense, the defendant set up a general denial, and in further answering admitted the issuance of the said policy, but alleged "that at the time of the destruction of the building the policy was no longer operative, was lapsed and null and void by reason of the failure to pay the premium due"; and also alleged that the said premium became due March 1, 1934, and was not paid by the assured after repeated demands, nor was it paid by the plaintiff, although notified by the defendant on March 22, 1934, at which time the plaintiff was also advised of the lapsing, and payment of the premium was demanded.
The record discloses that at the time of the trial of the case the defendant, without objection by the plaintiff, was permitted to amend its answer by making the following additional allegations:
"(1) The failure of Ada R. Turner, administratrix, to pay a premium note dated March 3, 1932, in consideration of which said policy of insurance was issued, (2) so as to allege a provision of said note, application and policy, which provided for the deduction of the amount of unmatured and unpaid installments of said note in the event of a loss under said policy, and (3) so as to allege the respondent's knowledge of said note and acquiescence in its provisions."
The case was tried at the June, 1935, term of said Court, before his Honor, Judge R.W. Sharkey, and a jury. After the introduction of all the testimony offered by the parties, his Honor, Judge Sharkey, ruled that there was no issue for the jury, and took the case under advisement for decision to be rendered at a later date.
In this connection it may be stated that it appears from the record that the greater part of the testimony introduced in the case was taken by deposition. It further appears from the record that before entering into the actual trial of the case the defendant interposed an oral demurrer, on the ground that the said Ada R. Turner, administratrix, was a necessary party to the action, and contended that there could be no adjudication unless she was made a party. The trial Judge overruled this demurrer.
It appears from the record in the case that the policy in question was duly issued. It further appears that the building alleged to have been destroyed was, in fact, completely destroyed April 15, 1934, and that the mortgage referred to and alleged by the plaintiff to have been owned by the plaintiff was foreclosed in the fall of 1934, subsequent to the institution of this action, and that the title to the property in question was now in the plaintiff; that the said policy was issued in consideration of the payment of an annual premium and the execution by the assured of a premium installment note payable as follows:
"In four (4) annual installments of Fifty-five and 60/100 ($55.60) Dollars each, on March 1st of each of the years of 1933, 1934, 1935 and 1936, the first installment of which was duly paid, but the amount due March 1st, 1934, was not paid either by the assured or the Respondent, and it was while this premium was in default that the building was destroyed."
It further appears from the record that the defendant claimed to have mailed a notice to the home office of the plaintiff on March 22, 1934, advising the plaintiff of the non-payment by the assured and demanding that this installment be remitted promptly. The defendant further contended that this notice "was one of cancellation." However, the same was construed by the Court to be only a demand for payment. The record discloses that at the time of the destruction of the building in question the installment referred to had not been paid by the plaintiff nor the assured.
At the conclusion of the introduction of the testimony the defendant, as well as the plaintiff, moved for the direction of a verdict. The motions were taken under advisement by the trial Judge and the case withdrawn from the jury. Thereafter, June 22, 1935, his Honor, the trial Judge, issued an order giving judgment to the plaintiff for the relief prayed for in his complaint, subject, however, to the deduction of the amount of the unpaid premium. The amount of the judgment involved is $291.28, with interest from June 12, 1934. From this judgment and the several rulings in connection with the trial therewith, the defendant, pursuant to due notice, has appealed to this Court, imputing error to the trial Judge as set forth in the following exceptions, to wit:
"1. That his Honor erred, it is respectfully submitted in holding in his order dated June 22, 1935, that `no notice of cancellation of the policy or of any intention to cancel was ever given the Plaintiff by the Defendant.'
"2. That his Honor erred, it is respectfully submitted, in holding in his order dated June 22, 1935, `the only disputed fact in the case related to the question of whether or not notice was given to the Plaintiff by the Defendant demanding payment of the premium which fell due on March 1, 1934.'
"3. That his Honor erred, it is respectfully submitted, in holding in his order dated June 22, 1935, `the fact that this provision must be construed as a condition can only mean that upon its breach by the mortgagee, the right then becomes vested in the insurer to cancel policy because of the failure of the mortgagee upon demand to pay the premium. But this right can only be exercised by the Insurance Company after a strict compliance with the terms of the agreement between it and mortgagee.'
"4. That his Honor erred, it is respectfully submitted, in holding in his order dated June 22, 1935, `in this case the Defendant (insurer) failed to give to the Plaintiff (mortgagee) notice of cancellation of the policy, an act which it was clearly in duty bound to perform under the cancellation clause of the agreement.'
"5. That his Honor erred, it is respectfully submitted, in overruling Appellant's motion for a direction of verdict made on the ground that the mortgagee had not fulfilled the conditions of his contract by paying the premium that was past due, after demand."
The appellant, in substance, sums up the questions raised by the appeal, as follows:
"1. Is the communication from Appellant to Respondent a notice of cancellation as well as a demand for payment?
"2. Did the Court err in holding that it was a disputed fact whether or not notice was given to Respondent by Appellant?
"3. Did the Court err in holding that the Respondent could recover after ruling that payment of the premium by the Respondent after demand was a condition and not a covenant?"
In our opinion, the trial Judge, in the order issued by his Honor, reached the right conclusion on the issues involved. The letter addressed to the plaintiff by the defendant, omitting the non-essentials, reads as follows:
"The installment of note given for premium under Policy No. I. 37249 S, issued by The Franklin Fire Insurance Company of Philadelphia, to Ada R. Turner, Admx., is now overdue and unpaid.
"The endorsement upon said policy in your favor as mortgagee provides upon demand for payment by you. The amount due is $65.97.
"Trusting that we may have your prompt remittance, beg to remain."
Clearly, this notice was only a demand for payment, and was not a notice of cancellation. The other questions presented in the case are sufficiently answered by the said order of his Honor, the trial Judge, which order will be incorporated in the report of the case.
The exceptions are overruled and the judgment of the lower Court affirmed.
MR. CHIEF JUSTICE STABLER and MESSRS. JUSTICES BONHAM, BAKER and FISHBURNE concur.