Milwaukee Mechanics' Ins. v. Ramsey

Mr. Justice Burnett

delivered the opinion of the court.

"We note át the outset that the insurance was effected by the mortgagor at his own expense under the policy, in which he is designated as the insured, and which insures his property, and appoints the mortgagee as the one to receive payments of the loss to the extent of its interest; otherwise, it is to be paid to Ramsey.

1. It is well settled that if a mortgagee, having, as he does, an interest in preserving the property pledged to him as security, insures the same at his own expense, and a loss by fire occurs, the insurer, paying the loss to the insured mortgagee to the amount of the debt, is subrogated to the means of enforcing payment of the original obligation by the debtor. In such instances the claim is not extinguished until payment by the one primarily liable. All that has happened in *574 that respect, is a change of creditors. The reason is that the insurance contracted and paid for by the mortgagee has the effect of making the insurance company a surety to the holder of the mortgage for the payment of the debt. Having liquidated the same, the insurer is subrogated to the rights of the one to whom payment is made, which is the same as though he had signed as surety and paid the promissory note, for the debt is really what is insured in such cases. In very truth the mortgagee has nothing else to insure, and when the debt is paid his policy lapses. The transaction is an instance of a contract directly between the mortgagee and the insurer, and is worked out like any other surety stipulation, with the resulting subrogation.

2. Again, if insured property is burned by the tortious act of one not a party to the policy, the insurance company, paying the loss to anyone to whom by the terms of the policy payment must be made, is subrogated pro tanto to the chose in action the payee has against the tort-feasor. The reason in such a case is that, but for the wrong resulting in destruction of the property, no liability would have accrued against the insurance company; but as it has neither privity of estate or contract with the incendiary, and is nevertheless compelled by the policy to pay for the result of the tort, its reimbursement is accomplished by subrogation.

3. The transaction described in the complaint, of which a résumé has been given, does not fall within either of these classes. We read in the complaint that the company is empowered to engage in the business of insurance against loss by fire. The policy which appears in the record insures Ramsey, not the plaintiff, against “all direct loss or damage by fire, except as otherwise *575 provided,” upon the building and contents described in the instrument. By it the company agrees with Bamsey, and not with another, to pay a certain designated person in case of a loss. It does not agree to pay Bamsey’s debt. The application to his obligation of the proceeds of the insurance in case of loss is a matter between Bamsey and the bank. What became of the money is no concern of the plaintiff after it paid the bank. It did not insure the debt. It insured the building. If Bamsey had burned the house, the mortgagee would have had an action against him for the tort, in that he damaged it by depreciating the value of the mortgaged property. Because such burning would have resulted in the company being compelled to pay the loss, it would have been entitled to subrogation to the rights of the bank to recover damages from Bamsey under the second illustration given at the outset. It is not charged in the complaint that Bamsey was in any way to blame for the fire. He incurred no liability on that account to the company or to the bank. The plaintiff did not pay Bamsey’s debt, and hence has no privity with that obligation entitling it to subrogation. As Bamsey did not burn the building, there is no transaction of his which entails liability upon the company, either directly or indirectly, and which would give rise to the privity entitling it to subrogation.' If there is to' be any subrogation, it must be for the reason that the mortgagee has some hold upon the mortgagor to make him perform the duty which the plaintiff was compelled to discharge. The latter was obligated to pay for the fire, but Bamsey was not. Having no power to make Bamsey reimburse it for the burning, the bank could not impart any such authority to the plaintiff by subrogation: *576 Fire Assn. v. Patton, 15 N. M. 304 ( 107 Pac. 679 , 27 L. R. A. (N. S.) 420).

In brief, for a consideration, tbe company agreed with Ramsey to pay a loss, and not a mortgage to the bank. We cannot import into tbe contract a stipulation to tbe effect that Ramsey should not only pay the premium, but also reimburse tbe company for the loss. It is not tbe intention of tbe parties that Ramsey should thus carry all tbe risk, besides paying tbe premium. Tbe plaintiff was paid for assuming tbe risk, and has only complied with its contract by payment of tbe loss. It is not entitled to anything beyond its stipulation. We have examined all the authorities cited by tbe plaintiff to sustain tbe postulate that where tbe policy has become void as to tbe interests of tbe mortgagor, but remains in force as a protection to tbe mortgagee alone, tbe insurer, upon paying the'mortgage, is entitled to subrogation. Without exception tbe adjudicated cases noted in tbe plaintiff’s brief rest upon a.separate contract between tbe mortgagee and tbe insurer, or tbe insurance was paid for by tbe mortgagee, or tbe policy was assigned to him, and hence became bis property tbe same as though originally made to him. In Carpenter v. Providence etc. Ins. Co., 16 Pet. 495, 502 ( 10 L. Ed. 1044 ), cited by plaintiff, Mr. Justice Story says:

“If, then, a mortgagor procures a policy on the property against fire, and be afterward assigns tbe policy to tbe mortgagee * * as collateral security, that assignment operates solely as an equitable transfer of tbe policy, so as to enable tbe mortgagee to recover tbe amount due, in case of loss; but it does not displace tbe interest of tbe mortgagor in the premises insured. On tbe contrary, tbe insurance is still bis insurance, and on bis property, and for bis account.”

*577 There are respectable precedents holding that the stipulation must be indorsed upon or appended to the policy, stating the manner in which the conditions of the instrument will apply to a mortgagee to whom loss is payable, if his right to receive payment is to be in any wise limited by the restrictions imposed upon the insured: Boyd v. Thuringia Ins. Co., 25 Wash 447. ( 65 Pac. 785 , 55 L. R. A. 165). This seems to be the theory upon which the bank recovered, and Ramsey did not, in their joint action upon the policy. Under this construction of the insurance agreement the company contracted with Ramsey to pay the bank in case of loss as its interest might appear absolutely and without reference to its violation of other terms of the policy. Hence in paying the Ions to the bank the company was fulfilling its stipulation with Ramsey. It was complying with that part of its engagement with him which remained impossible of rescission, although he violated other portions thereof already mentioned. The company is before us contending that it has a right to enforce subrogation against Ramsey as an incident of a contract with him under which it says he has no rights. It maintains it was compelled to pay because of the terms of the policy. That feature, however, was a condition favorable to Ramsey, which was not affected by his selling the property. That much of the benefit for which he contracted remained unimpaired. The fallacy of the plaintiff’s argument consists in assuming that Ramsey forfeited all his rights, when in truth there remained the one compelling the plaintiff to pay the bank in case of loss.

This action proceeds on the hypothesis that the plaintiff was obliged to pay; but, even so,- it was because of its covenant with Ramsey for which he had paid a *578 premium of $60. The payment of the loss was a compliance with the company’s engagement to Ramsey, with whom it contracted, hut for which no liability of the company would have accrued. The result is not different as to Ramsey’s liability in this action, if his sale of the property worked an utter avoidance of the policy in all its terms. There are cases giving such construction to similar policies on the ground that, as the mortgagee must claim under a contract made for his benefit, he cannot occupy a better position than the one who made the contract; that the creditor must take the insurance agreement with its burdens, as well as with its benefits; and that if the maker of the contract, the mortgagor, cannot recover directly, neither can one who claims under him: Delaware Ins. Co. v. Greer, 120 Fed. 916 ( 57 C. C. A. 188 , 61 L. R. A. 137); Brecht v. Law Union & Crown Ins. Co., 160 Fed. 399 ( 87 C. C. A. 351 , 18 L. R. A. (N. S.) 197), and note. However this may be, yet if such "a meaning should be given to the policy, the company, being exonerated from payment by Ramsey’s breach of the contract, was not bound to pay anything, so that its disbursement was voluntary, and. not recoverable.

The decree of the Circuit Court is affirmed.

Affirmed.