New York County NyArchives Court.....Lett, William Vs Guardian Fire Insurance Co 1889
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Source: Reports Of Cases - New York
Written: 1889

First Department, May Term, 1889.

WILLIAM F. LETT, Appellant, v. THE GUARDIAN FIRE INSURANCE COMPANY, Respondent.

Insurance policy — right of an owner of the insured property, whose right is 
lost by reason of a breach of condition, to recover as the assignee of a 
mortgagee under a mortgagee clause attached to the policy.

A policy of insurance was issued by the defendant upon the property of one 
Briggs, upon which there was a mortgage held by Angelina Butler, to whom, by the 
terms of the policy, the loss, if any, was to be paid. The policy contained a 
condition that the same should be void if any change took place in the title of 
the property, unless the consent in writing of the company were indorsed 
thereon, but a mortgagee clause or agreement was annexed to the policy by which 
the company agreed that the insurance, as to the interest of the mortgagee only, 
should not be invalidated by any act or neglect of the owner of the property, 
provided that whenever the company should pay the mortgagee any sum for a loss 
under the policy, and should claim that as to the mortgagor or owner no 
liability therefor existed, it should at once be legally subrogated to all the 
rights of the mortgagee, under all the securities held as collateral to the 
mortgage debt, to the extent of such payment.

The property was conveyed by Briggs, the owner, to the plaintiff without the 
consent of the company, subsequent to which conveyance it was injured by fire, 
and the plaintiff, to whom the mortgagee had assigned her interest in this 
policy of insurance (she having prior to such assignment, in consideration of 
payments made upon the mortgage, agreed to look to the land alone as security 
for the payment of the amount still due thereon), brought this action upon the 
policy.

Held, that the right to recover upon the policy, as a part of the security for 
the debt, was extinguished by the payment which had been made upon the debt, and 
by the agreement of the mortgagee to look to the land, so that the mortgagee had 
no longer any remaining interest in the insurance policy.

That, consequently, the plaintiff derived no advantage from the assignment 
thereof made by the mortgagee to him.

That as the parties had by their agreement destroyed any right on the part of 
the defendant to be subrogated to the rights of the mortgagee, they had released 
the defendant thereby from liability under the mortgagee clause.

That, as the plaintiff, as the owner of the property, by reason of the breach of 
condition of the policy, had no legal right to enforce the policy against the 
company in his own behalf, and as even should he be permitted to do so, as the 
assignee of Mrs Butler, then, under the provisions of the mortgagee clause, the 
company would be entitled to resort to the mortgagee for reimbursement for any 
amount which it should be compelled to pay, that the law, to avoid circuity of 
action, would hold this right to reimbursement to be a defense against the 
enforcement of the policy.

Appeal from a judgment, rendered at the New York Circuit, dismissing the 
plaintiff's complaint, entered in the office of the clerk of the county of New 
York on the 14th day of June, 1888.

James M. Lyddy and John A. Goodlett, for the appellant.

N. B. Hoxie, for the respondent.

Daniels, J.:

The action was to recover the amount of a policy of insurance issued by the 
defendant upon the 19th of April, 1883, upon two five-story brick buildings, 
adjoining and communicating, and being 62 and 64 Rutgers slip, $1,250 being 
insured upon each building.

At the time when the policy was issued the property was owned by S. Ellis 
Briggs. A mortgage existed upon it which was held by Angelina Butler to secure 
the sum of $15,000 and interest. The insurance, by the policy, was to extend 
over the period of one year. On the 29th of May, 1883, S. Ellis Briggs, with his 
wife, conveyed the premises insured to Louis J. McKenna by a warranty deed, 
subject to the outstanding mortgage, securing $15,000, with interest, and, on 
the first of June of the same year McKenna conveyed the property by a warranty 
deed to the plaintiff. This change in the title divested Briggs of all his 
insurable interest, and, by a clause in the policy, it was declared that it 
should become void unless consent in writing should be indorsed upon it, if any 
change took place in the title, interest, location or possession of the 
property, excepting the case of succession by reason of the death of the 
insured, whether by sale, transfer or conveyance, in whole or in part. After the 
plaintiff acquired title by the deed delivered to him, and in the month of June, 
1885, evidence was given tending to show that notice of this change in the title 
was given verbally to officers of the insurance company. But no indorsement was 
either requested in writing or made by the company of that fact upon the policy. 

And the omission to obtain the indorsement, under this language, avoided and 
terminated the insurance so far as it could enure to the benefit of the 
plaintiff. And there was no obligation at any time affecting the defendant by 
which it was bound to make the indorsement upon the policy unless it consented 
so to do. When the policy was issued, the loss, if any, was made payable to 
Angelina Butler, the mortgagee; and a mortgage clause or agreement was annexed 
to the policy by which the company agreed that the insurance, as to the interest 
of the mortgagee only, should not be invalidated by any act or neglect of the 
mortgagor, or owner of the property insured, or by the occupation of the 
premises for purposes more hazardous than was permitted by the policy; but she 
was required to notify the company of any change of ownership or increase of 
hazards which should come to her knowledge, and for which the company reserved 
the right to be paid by the mortgagee on reasonable demand, according to the 
established scale of rates for the use of the increased hazards. A fire occurred 
on the 17th of September, 1885, injuring the property to the extent of upwards 
of $16,000.

At this time this and other policies were held by the mortgagee as security for 
the amount mentioned in the mortgage. After the occurrence of the fire the other 
companies having insurances upon the property satisfied by payments their 
liability for the injury to the property. By those payments the sum of $7,499.05 
was received and turned over to the plaintiff, and he paid to the mortgagee the 
sum of $6,679.52, with the interest then due, thereby reducing the amount of the 
mortgage to $8,500, and she assigned the mortgage to Austin Abbott as trustee. 
By this reduction the interest of the mortgagee in the insurances was 
extinguished, and from that time it was agreed that the mortgage should be held 
upon the land itself as security for the payment of the amount to which it had 
in this manner been reduced, and that security was regarded as, in fact it was, 
sufficient for the mortgage debt. For, according to the valuation of the 
property given by the plaintiff himself as a witness, it was stated to be worth 
about $35,000, which would leave a valuation of near $18,000 over and above the 
injury occasioned by the fire.

When the settlement reducing the mortgage to this sum of $8,500 took place, Mrs. 
Butler, the holder of the mortgage, executed an assignment of this policy of 
insurance to Austin Abbott, and he delivered the assignment as well as the 
policy to the plaintiff, who had also taken an assignment of the interest of his 
grantor on the 1st of June, 1885. And the real point, legally speaking, in the 
case is whether the plaintiff can maintain this action under the assignment 
executed to Abbott, and a subsequent assignment of the same policy made by him 
to the plaintiff on the 13th of April, 1888. If Mrs. Butler had retained her 
right to the mortgage, she would have been at liberty to collect the amount on 
the policy from the defendant, but, by the payments and agreement with her, the 
right to hold the policy as an additional security for the money mentioned in 
the mortgage was extinguished. And the plaintiff was a party to the arrangement, 
and made the payments to her through which that result was produced.

The defendant had then denied its liability upon the policy, but still there was 
a liability which might have been enforced by Mrs. Butler if this change had not 
been made in the security. But by the change and the payments the insurance was 
wholly detached from the debt. Her right to claim or recover upon it as a part 
of her security was extinguished by the payments then made to her by the 
plaintiff, and she had no remaining interest in the insurance after that which 
she could assign, or keep the policy alive in favor of the assignee. The 
plaintiff accordingly derived no advantage from the assignment made by her to 
Abbott, and the delivery of that assignment with the policy to him. For she had 
no remaining interest in it to assign.

The agreement of the company with the holder of the mortgage provided, further, 
that "it is also agreed that whenever the company shall pay the mortgagee any 
sum for loss under this policy, and shall claim that, as to the mortagor or 
owner, no liability therefor existed, it shall at once be legally subrogated to 
all the rights of the mortgagee under all the securities held as collateral to 
the mortgage debt, to the extent of such payment, or, at its option, may pay to 
the mortgagee 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 all other securities held as collateral to the mortgage debt; but 
no such subrogation shall impair the right of the mortgagee to recover the full 
amount of her claim." And as the plaintiff, as the owner of the property, had no 
legal right to enforce the policy against the company in his own behalf, if he 
should be permitted to do so, as the assignee of Mrs Butler, then, under this 
part of the agreement, the company would be entitled to resort to the mortgage 
for the reimbursement of the amount it would be compelled to pay out of the 
property. In other words, whatever sum it might pay to the plaintiff, as the 
assignee of Mrs Butler, it would be entitled to reimburse itself for out of the 
property owned by the plaintiff himself and incumbered by the mortgage. And 
where that may be the relation of the parties to a transaction the law, to avoid 
circuity of actions, will hold this right of reimbursement to be a defense 
against the enforcement of the agreement itself.

There would be no legal propriety in allowing the plaintiff to collect the 
amount of this insurance from the company, when upon its payment the company 
could resort to his property through the mortgage, and recover back what it had 
paid. (Phelps v. Johnson, 8 Johns., 54; Clark v. Bush, 3 Cow., 151; Brown v. 
Williams, 4 Wend., 360; Conn. Fire Ins. Co. v. Erie Ry. Co., 73 N. Y. 399.) The 
case in this respect differs from that of Baynor v. Baynor (21 Hun, 36), where, 
upon the assignment of a mortgage without the debt, it was permitted to be 
enforced in favor of the assignee for the amount which was advanced to obtain 
it. In this case the plaintiff advanced nothing, in fact, for the payment which 
was made was obtained from policies of insurance held by Mrs Butler as the 
assignee of the mortgage.

The result will be the same if the transaction between the plaintiff and Mrs. 
Butler, and Abbott, who took the assignment of the mortgage as a security from 
that time only upon the land, by the adjustment of their affairs extinguished 
the right of the company to follow and enforce the mortgage for its indemnity. 
For if they, in this manner, destroyed the right of the defendant under its 
agreement to subrogation for its own protection, that destruction, necessarily, 
had the effect of releasing it from liability, both to Mrs. Butler and the 
plaintiff, as the assignee. It did appear, further, by the evidence, after it is 
stated that the defendant denied its liability upon the policy, that the 
plaintiff took out another insurance for the same amount in the Phoenix 
Insurance Company. That insurance extended from the 25th of July, 1885, to the 
1st of May, 1886, and the plaintiff, in August, 1887, demanded of Briggs a 
return of the premium allowed in the settlement, for the policy issued by the 
defendant, on the ground that it had, at that time, been canceled, and he had 
obtained an insurance for the same amount in another company. This insurance was 
paid by the Phoenix Company, and the payment probably formed a part of the money 
received by Mrs. Butler to reduce the mortgage to the amount for which Mr. 
Abbott took it as security against the land alone. From the time when the 
settlement was made with her this policy was no part of the security for the 
mortgage debt, and its assignment, merely as a policy in which neither she nor 
Mr. Abbott any longer had an interest to transfer to the plaintiff, gave him no 
legal benefit under the arrangment which had previously existed, through which 
she held the policy as a further security. When this transfer was made it was no 
more than an insurance on the property itself for the benefit of the person to 
whom it had been issued, and assigning it subsequent to that time to Mr. Abbott, 
and by Mr. Abbott to the plaintiff, vested him with no right of action upon it. 
It was practically no more than the assignment of a mortgage would be without 
the transfer of an interest in the debt, and that would give the assignee no 
legal or equitable right to enforce it as a security. (Merritt v. Bartholick, 36 
N. Y., 44; Wanzer v. Gary, 76 id., 526.)

The judgment, under these principles, seems to have been right, and it should be 
affirmed, with costs.

Van Brunt, P. J., and Brady, J., concurred. 

Judgment affirmed, with costs.

Additional Comments:
Reports of Cases Heard and Determined in the Supreme Court of the State of New 
York. Marcus T. Hun, Reporter. Volume LIX, 1889, HUN 52. Banks & Company, 
Albany, NY. 1901.

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