Bidwell v. Northwestern Insurance Company

Bidwell v. Northwestern Insurance Company. A marine policy stated the insurance to be on account of A, loss, if any, payable to B., and the vessel was warranted by the assured free from all liens. B. held a mortgage of the vessel, subject to two prior mortgages: Held, that the insurance was of A., the owner, upon the vessel, and not of B. upon his interest as mortgagee of A.’s equity of redemption. That, therefore, the existence of the prior mortgages was a breach of the warranty, and fatal to .a recovery upon the policy. Appeal from a judgment of the Superior Court of Buffalo. The action was on a marine policy of insurance, dated July 19, 1853, issued by the defendant, of the steamer “Garden City,” to navigate Lakes Erie, St. Clair, Huron and Michigan, for one year from the date. The policy stated the insurance to be “on account of Erastus Crocker,” and in another place there was the expression “ loss, if any, payable to Vincent Bidwell” (the plaintiff). There was also a warranty in the following language: “ It is also agreed that the property be warranted by the assured free from hll liens, and from all claims that may or might be prosecuted against, or be made or become liens upon the same.” Crocker was the general owner of the steamer, and on the day of the date of the policy, he mortgaged her to the plaintiff to secure the payment of $25,000, with a condition that if the plaintiff should, at any time, consider himself in danger of losing his debt, &c., or if the mortgagor should make default in payment, the plaintiff might take possession of and sell the vessel, paying himself his debt, and returning the surplus to the mortgagor. The mortgage contained an agreement by the mortgagor to insure the vessel in some responsible insurance company, for at least the sum unpaid on the mortgage debt, and assign the policy to the plaintiff; and that in default of doing so the plaintiff was at liberty to insure and add the premium to the incumbrance. The mortgage was, by its terms, subject to two other mortgages, to the Buffalo Steam Engine Works, and to Bidwell, Banta & Co., hereafter mentioned. The complaint alleged that the plaintiff procured the policy from the defendants, and that it was made payable to him to cover his interest as mortgagee. The answer denied that the plaintiff procured the insurance, and averred that it was procured by Crocker; but it contained an admission as follows: That the said insurance and loss, if any, was made payable to the said plaintiff, to secure him, the said plaintiff, the interest which the said plaintiff claimed to have in the said steamer as a mortgagee, and not otherwise; and that the said plaintiff, or some other person, communicated the existence of such interest to the said defendants at the time such insurance was effected.” It appeared on the trial, which was before Mr. Justice Mas-ten, a jury being waived, that Crocker gave his note for the premium, and that it was indorsed by the plaintiff, and that the latter procured the policy to be issued by the defendant. It was shown that the plaintiff’s mortgage was given to secure him for indorsements and liabilities incurred for Crocker’s accommodation, and that an amount exceeding $5,000 remained unpaid thereon. The mortgage having become forfeited for non-payment, in November, 1853, the plaintiff took possession of the vessel at Detroit, Michigan, and advertised her for sale, and became himself the purchaser for the sum of $5,000, the sale being expressly subject to the two other mortgages mentioned. He procured her to be enrolled in his own name, and ran her as owner until the 16th May, 1854, when she was wrecked on Lake Huron, and wholly lost, except as to a part of her furniture, and her engine and machinery, of the value of about $8,000. There were two other mortgages on the vessel, one executed June 22d, 1853, by Erastus Crocker to the Buffalo Steam Engine Works, for $16,024.12, and the other on the same day with the plaintiff’s mortgage, but prior to it, by said Crocker, to Bidwell, Banta & Co., for $12,982. These are the mortgages .mentioned in the one to the plaintiff; they were duly filed, and remain unpaid. There were other marine policies of insurance on the vessel, viz.: policies for $16,000, procured by Crocker, and assigned by him to the Steam Engine Works, as security for their mortgage; and policies for $14,000, procured by Bidwell, Banta & Co., to secure their interest as mortgagees. At the close of the trial, the defendant moved for a non-suit, on the grounds, among others, that the insurance was upon Crocker’s interest as owner, and as the policy had not been assigned to the plaintiff, he could not maintain an action upon it; that the existence of the two other mortgages was a breach of the warranty against liens contained in the policy, and was fatal to a recovery, but that if the plaintiff could recover at all it was only on condition that the defendant be subrogated to the plaintiff’s rights as mortgagee. The motion was denied and the defendant excepted; and, finally, the judge made a decision that the plaintiff recover $5,326.68, which decision was also excepted to by the defendant’s counsel. After an affirmance at a general term the defendant appealed. Nicholas Hill, for the appellant. John Ganson, for the respondent. [MAJORITY — Denio, J.] Denio, J. It is a principle in the law of marine insurance, that an abandonment upon a total loss must be entire and absolute, and must cover the whole interest insured, so that the insurers may have the benefit of such indemnity as the circumstances will permit. (Arnould on Ins., 1159.) In the case of an actual, as distinguished from a constructive total loss, this principle would not be important; but it would be very material where it was constructive only, and a portion of the property was saved. It has accordingly been held, in a ease in Massachusetts, that if the assured, by mortgaging his ship, has voluntarily deprived himself of the power of conveying an absolute title, he cannot abandon to the underwriters, but can recover only for the damage he has actually sustained as a-partial loss. (Gordon v. Massachusetts Fire and Marine Ins. Co., 2 Pick., 249; Amould on Ins., 1161.) It was in reference, I presume, to this principle, that the insurers in this case inserted the warranty against liens contained in their policy. Being placed on the footing, of a warranty, the existence of liens, contrary to the spirit of the contract, has a much more prejudicial effect upon the interests of the assured than the principle of law which I have mentioned; as the doctrine upon that subject is, that the validity of the entire contract depends upon the literal truth or fulfillment of the warranty. (Arnould, 577.) The existence of the two prior mortgages mentioned in the bill of exceptions would seem, therefore, to be fatal to the recovery in this case, unless the answer given by the plaintiff’s counsel avoids the objection. He argues that the contract of insurance was, in fact and in judgment of law, between the plaintiff and the defendants, and that the subject insured was the plaintiff's interest as a mortgagee; and as that interest was, when created, a mortgage upon Crocker’s equity of redemption in the vessel, and was as absolute and as free from any lien or incumbrance at the time of the loss as when it was originally created, the warranty respecting liens, if it was applicable at all to the case, was true when made, and was never afterwards broken. There is much greater latitude in applying a policy of insurance to the interest intended to be covered than in other written contracts; and, in general, if it is said to be on the account of a person as agent, or of one for the owner, or for whom it may concern, the party who really procures the insurance, and whose property it was intended to cover, may be shown. (Arnould, 25, in the notes; Boston ed., 1850.) The admission in the answer is quite consistent with the position that Crocker was insured as the owner of the vessel, and that the provision for the payment to the plaintiff in case of a loss was simply the consequence of an arrangement between Crocker and the plaintiff, that the latter should have the avails of Crocker’s contract in case a loss should take place. The case of Grosvenor v. Atlantic Fire Insurance Company of Brooklyn (17 N. Y., 391), seems to me to be a very strong authority against the plaintiff, and to be quite conclusive upon the case. McCarty was named as the party insured; but it was added that the loss, if any, was to be paid “to Grosvenor [the plaintiff], mortgagee." The intent to secure him in his character as mortgagee was as strong as, upon the admission in the answer, it was in this case to secure the plaintiff as the holder of the chattel mortgage; but it was decided that the contract was between McCarty and the insurance company, and that it was McCarty’s house, and not Grosvenor’s interest, which was insured; and it was accordingly held, that a breach of the conditions of the policy by McCarty was fatal to the recovery. In conformity with this judgment, we are obliged to hold, in this case, that this policy was upon the vessel, and not upon the mortgage interest, and that Crocker, and not the plaintiff, was the party insured. It follows from this, that the liens which were warranted against, were upon the subject insured, and, hence, that they constituted a breach of an express warranty. The result of this view of the case is, that the judgment of the Superior Court of Buffalo was erroneous, and that it should be reversed and a new trial awarded. All the judges concurring, Judgment reversed, and new trial ordered.