Smith v. Columbia Insurance

1. A fire insurance on specific property to secure a particular interest, covers a loss happening fay a destruction of such property only as was held in that particular right, and to the extent only of the injury to that interest. 2. Hence where the interest to fae secured fay the policy was described as a mortgage including land, it is a material fact that the land was subject to prior mortgages held fay the assured at the date of the policy, and which if concealed vitiates the policy. 3. A. insured certain real and personal property for $4000, to secure a mortgage which was said to cover land ; and in the answers to the interrogatories he apportioned the sum insured among the different species of property. He then held three mortgages on the land, the last of which was for $4000, and one on the personalty. The property mentioned in the policy was destroyed to an amount greater than the sum insured, but the land remaining was proved to fae of greater value than $4000. The insurers offered to pay the loss on receiving an assignment of all his mortgages of which they had no notice until after the loss. Held, 1st. He could recover only for the value of the property included in the mortgage for $4000. 2d. That the existence of the prior encumbrances on the mortgaged property was a material fact which should have been communicated to the insurers without inquiry fay them.

Certieioate from the Nisi Prius. The plaintiff declared in covenant on a policy of insurance against fire, averring that at the time of effecting the insurance, and at the time of the loss “ he was interested in the said insured frame buildings, machinery and tools of the satinett factory, known as Watson’s factory, and owned by Samuel Watson.” At the trial he gave in evidence the order for insurance. “ Make insurance against loss or damage by fire for four thousand-dollars, on the under mentioned property, for the term of one year, on the frame buildings and lot, machinery and tools of the satinett factory, known as Watson’s factory, situate, &c.; owned by Samuel Watson, and now insured by the undersigned to cover a mortgage on said property, held by me on the same for said amount, according to survey on file in this office, lot included.” The premium paid, was two and a half per cent. The survey contained an estimate of the value of the property described in the application : 1. Factory building and fixtures, &c., with various items of machinery, in all - - - - $4180 2. Dye-house $700; machinery stored in this building intended to be sold, $1250, - 1950 Dry-house, .......100 6230 He further gave in evidence the answers to the printed queries, thirty-five in number, all of which are fully answered. In these it was stated, “ S. J. Watson, of, &c., is the owner, -and James Smith (the plaintiff) is mortgagee and holds possession under the mortgage.” The 34th interrogatory was as follows:— “State the amount of insurance wanted; on building and fixtures in each building; on machinery do.; on stock and merchandise do.” Ans.—On factory and fixtures, - $1500 On machinery, including the machinery in the dye-house, ....... 2000 On dye-house,......500 ___ $400 There was no inquiry made respecting mortgages or other encumbrances. The plaintiff then read in evidence the policy sealed by the defendants ; the risk being thus described, after reciting the payment of the premium. “ Upon the frame buildings, machinery and tools of the satinett factory, known as Watson’s factory, and owned by Samuel Watson, situate at Leicester, Worcester county, Massachusetts, according to survey on file in this office. This policy is intended to secure a mortgage held on the above named property by the assured.” It then proceeded in the usual form to covenant, to make good to the assured all damage that might happen by fire “ to the property above mentioned,” not exceeding $4000, or to replace the goods, of to pay the amount awarded by arbitrators. The plaintiff then read in evidence to the jury, as part of his preliminary proof, the following paper, endorsed “ list of prior mortgages.” Leicester, Feb. 26, 1848. I hereby certify that at the time of the destruction of my factory by fire, in this place, on the 11th inst., there were the following mortgages upon the real'estate and machinery, viz.:— One to Lucretia Denny 2d, dated January 30,1816, for $1000.00 Interest on the same, from April 6, 1840, - - 471.00 One to Thomas Denny, dated May 18, 1826, upon which was a balance, July 1, 1844, of - - 435.00 Interest on the same from July 1, 1844, ... 93.24 One to James Smith, dated October 22, 1836, upon which was a balance, April 22, 1844, of 3000.00 Interest on the same, from April 22, 1844, - - 684.50 $5684.74 One to Thomas Lord & Co., and now owned by James Smith, dated July 1,1835, upon which was a balance, January 1,1847, of ----- - 4000.00 Interest on the same, ------ The plaintiff then read a resolution of the board of directors of the defendants: “ That the company is willing to pay whatever it is liable for, conditioned that Mr. Smith will transfer his interest in the property saved from fire and the other mortgages (of which the company had received no notice, but said by Mr. Smith to be on the same property), to this company.” The plaintiff then examined the former secretary of the defend - ants, to prove the above papers, &c. He stated, on cross-examination, “there was nothing said about prior mortgages. No inquiry was made. If I had known of their existence I would not have taken the risk at all.” The plaintiff then read certain evidence taken under a commission to Massachusetts, with exhibits attached thereto. These proved the destruction and value of the property beyond the amount insured. The estimates of the property destroyed, among which were all the items mentioned in the answer to the 34th interrogatory apportioning the sum insured, varied from $5750 to $5925 Other property saved and not insured, 1490 to 1690 Land on which the factory stood, 5000 By this commission the various mortgages already mentioned in the preliminary proof were also proved. That for $3000 it appeared had been originally given to secure a note of $10,000 drawn by Watson and endorsed by the plaintiff, and by payments the amount was reduced as stated in the preliminary proof, and it, with the note secured, had been assigned to the plaintiff. But it also appeared from the document itself that this mortgage covered only the machinery and tools in Watson’s factory, and did not bind the real estate, whereas all the other mortgages were exclusively upon the realty. The mortgage to Lord & Co. was also originally given to secure a note of $6000, which, by payments, was reduced to $4000, as above stated. It was on the realty only. Attached to this mortgage was a certificate, and the fact was proved by a witness, that possession had been taken of the real estate under this mortgage by the plaintiff. But it also appeared that the factory was in the actual occupancy of a tenant, or by Watson, at and for some years prior to the fire. All of these mortgages were assigned to the plaintiff, and held by him at the time of effecting the insurance. The defendants then moved for a nonsuit on the ground of misrepresentation apparent from the evidence of the situation of the property and the rights of the plaintiff, and the representations contained in the policy, order for insurance, and answer to the queries. Also, on the ground of variance between the titles proved in evidence and the particular title named in the order for the insurance and the answers to the queries, the plaintiff’s counsel having been repeatedly called on to designate which of the several mortgages given in evidence he relied on, which the counsel .declined doing, and insisted on his right to proceed and claim under all of the said mortgages; but the court overruled the motion. The defendants then called their former secretary, who executed the policy. He said, “ Smith called on me at the office at the date of the order. He applied in the usual way for insurance, without giving the particulars as to mortgages. This description (order) said nothing about prior mortgages. I would certainly not have taken the risk if I had known there were prior encumbrances; perhaps I might at an unreasonable rate; but I would not have done so at five per-cent. Premium varies as to houses. We generally reject frame houses in the neighbourhood of the city. There is no customary price for them. I did not ask plaintiff if he had any other mortgages. The president really took the risk in connexion with myself. I do not remember hearing any inquiry on the subject of mortgages. I was within hearing when the president asked questions. If he named any such thing as prior encumbrances we would not have touched it; that is my opinion. Our objection, knowing prior encumbrances, is from the interest to cause a loss.” The counsel for the defendants then requested the court to instruct the jury on the following points:— 1. That there was a material misrepresentation and concealment which avoided the policy, because the underwriters had the right to the legal inference, that the value of the real estate would be applied towards the payment of the mortgage in aid of the insurance, or that they paying the insurance might look to the land for reimbursement; i. e. would be subrogated to the right of the party indemnified by them. 3. That the plaintiff could only recovér for the injury sustained on the property included in some one of the mortgages, and covered by the risk, as distributed by himself; and as it appeared that one-half the risk was included in one mortgage and one-half in another mortgage, the plaintiff could not recover more than one-half the amount of the policy. His honor instructed the jury that the facts of the plaintiff’s interest consisting of several mortgages instead of one, and of his concealing the prior mortgages, were immaterial. The only object in showing the mortgages was to prove an insurable interest. It was the business of the insurers to inquire if they deemed the extent of his interest material, and then a false answer would have been fatal. Nor was it any answer that the plaintiff had not assigned his interest to the defendants, even if entitled to subrogation. “ Nor do I see the force of the allegation of the defendant that the plaintiff is confined to the property covered by his title, or to the amount insured on each item, according to his distribution of the risk. All the difficulty on that head is removed by the proof that all the property, of whatsoever kind insured, was destroyed by the fire, or was of a value much greater than the sum insured. On the whole case, the Court instructs you that the plaintiff is entitled to a verdict. “ Whether the plaintiff intended to cover all the mortgages, or the last mortgage, would seem to be immaterial, as there is no doubt that on that mortgage more than $4000 was due the plaintiff.”