J. W. Longfellow, Appellant, v. The National Fire Insurance Company, Appellee

Kansas Supreme Court1918-02-09No. No. 21,301

102 Kan. 473

Summary · law.co

Holding. The judgment for the defendant insurer is affirmed. A mortgagee's rights under a standard mortgage clause are derivative and conditioned on the existence of an assured owner with the right to recover; when the original assured transferred the property without the insurer's acceptance of the new owner, the mortgagee acquired no independent claim to proceeds.

A mortgagee sought to recover insurance proceeds under a policy issued to the original property owner after the property was sold to a new owner. The insurance policy contained a standard mortgage clause naming the mortgagee as a payee of any loss proceeds, but was conditioned on the policy becoming void if title, possession, or interest changed without the insurer's written consent. When the original owner sold the property, a realty company attempted to arrange assignment of the policy to the new owner, but the insurance company imposed conditions—specifically requesting information about the new owner's fire loss history—that were not satisfied before a loss occurred. The insurer then canceled the policy as of the date it learned of the transfer and returned the proportional unearned premium.

The mortgagee argued his rights derived from the mortgage clause in the original policy. The court rejected this reasoning, holding that the mortgage clause merely designated the mortgagee as a conduit to receive proceeds on behalf of the assured owner, not as an independent party with direct rights against the insurer. Since the original owner no longer possessed the property and the new owner never became an accepted assured under the policy, no valid insured party remained. The insurance contract is personal in nature, and the insurer retained the right to decline substitution of a new obligor or to impose reasonable conditions for doing so.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether a mortgagee can claim insurance proceeds after the original assured transfers property without the insurer's consent
The nature and scope of rights conferred by a standard mortgage clause in an insurance policy
The insurer's right to impose conditions and refuse substitution of obligors in a personal contract of insurance

Procedural posture

The mortgagee appealed from a judgment rendered in favor of the insurance company in the district court.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

The opinion of the court was delivered by

Burch, J.:

The action was one by a mortgagee to recover on an insurance policy issued to his mortgagor. The judgment was for the defendant, and the plaintiff appeals.

The policy was issued to the owner of the property, Joseph Leaviek. One of the provisions was that the policy should be void in case of change of title, possession, or interest, or in case of assignment of the policy, unless otherwise provided by agreement indorsed on the instrument. Leaviek sold the property and conveyed it to A. L. Landsberg. The sale and conveyance were effected by a realty company, which later undertook, by correspondence to procure an assignment of the policy to the vendee. The insurance company imposed certain conditions, which were-not met until after loss had occurred. The delay was caused by the realty company, and was not the result of inattention or other fault of the insurance company. After receiving information that loss had occurred, the insurance-company returned to Leavick the proper proportion of the premium for the unexpired time subsequent to the date on which the company learned of the transfer to Landsberg, and canceled the policy as of that date. The plaintiff bases his right to recover on the following stipulation of the policy:

“This company hereby consents that the loss, if any, under this policy, after the same shall have been ascertained and duly verified by the assured, shall be payable to J. H. Longfellow, or assigns, Bonner Springs, Kan., mortgagee, for and on account of said assured; subject, however, to all the terms and conditions contained or referred to in this policy.”

The stipulation merely constituted the mortgagee an appointee to receive the proceeds of the policy for and on account of the assured, subject to compliance by the. assured with the conditions essential to recovery by him. There is no substantial disagreement among the authorities respecting this subject. A statement of principles and a list of cases in which the principles have been discussed and applied may be found in a case note, 18 L. R. A., n. s., page 197. In the note referred to, the clear distinction between the form of mortgage -clause under consideration and the more modern form known as the union mortgage clause is pointed out and illustrated.

When Leavick sold the property he lost the right to claim insurance money, and the mortgagee lost the right to claim through him. The contract of insurance is personal. The insurer has a right to choose with whom he will contract. A substitute for the assured cannot be introduced without the insurer’s assent, and he may condition his assent as he may choose. In this instance the insurer desired to know of the proposed substitute if he had ever’ suffered loss by fire, and if so, the particulars — a very reasonable requirement. The information was not furnished, and Landsberg was not accepted as the person assured in place of Leavick. This being true, the mortgagee cannot claim through Landsberg. The mortgagee has no claim except through an assured owner of the property having a right to recover, and no such person is in existence.

It is not necessary to find an apt name for the status of the policy while negotiations were pending for substitution of a new party for the one originally assured. Leavick was out and Landsberg was not in. The insurer lost no rights by entertaining the proposal to substitute. The negotiations were all in writing. They were fair and easy to- understand, on the side of the insurance company, and the letters show that nobody was misled. They came to nothing, a,nd the court properly instructed a verdict for the defendant.

The judgment of-the district court is affirmed.