Petello v. Teutonia Fire Ins. Co. , 89 Conn. 175 ( 1915 )

The first assignment of error raises the question whether the bills of sale, given under the circumstances stated in the finding, avoid the policy as a breach of the condition that the interest of the insured should be that of sole and unconditional ownership.

As between the parties, the transaction was one to which a court of equity might give the effect of a mortgage, although the bill of sale was absolute in form. It could have no other effect. Morin v. Newbury,79 Conn. 338, 340, 65 A. 156; Lovell v. Hammond Co.,66 Conn. 500, 510, 34 A. 511.

It is generally held that outstanding mortgages and liens do not constitute a breach of a condition in a fire insurance policy that the interest of the insured is that of sole and unconditional ownership. Cooley speaks of this as the well-settled rule, and it seems to be followed not only in States where the effect of a mortgage is merely to create a lien, but also in States where the mortgage is treated as a conveyance of the title. 2 Cooley, Briefs on Insurance, 1378; 19 Cyc. 694;Carson v. Jersey City Ins. Co., 43 N.J.L. 300; Hare v.Headley, 54 N.J. Eq. 545, 35 A. 445; Clay F. M. S.Ins. Co. v. Beck Bolte, 43 Md. 358; Westchester FireIns. Co. v. Weaver, 70 Md. 536, 17 A. 401, 18 id. 1034;Wolf v. Theresa Village M. F. Ins. Co., 115 Wis. 402,91 N.W. 1014; Dolliver v. St. Joseph F. M. Ins.Co., 128 Mass. 315; Union Assurance Soc. v. Nalls,101 Va. 613, 44 S.E. 896; Phoenix Ins. Co. v. PublicParks Amusement Co., 63 Ark. 187, 37 S.W. 959;Hartford Fire Ins. Co. v. Enoch, 72 Ark. 47,77 S.W. 899. The same rule is applied to a vendor's lien on land not wholly paid for. Insurance Co. of N. A. v.Pitts, 7 L.R.A. (N.S.) 627, and cases cited in note (88 Miss. 587, 41 So. 5).

The defendant has pointed out but one case in which this condition, that the interest of the insured should be that of sole and unconditional ownership, has been held to be broken solely because the interest of the insured was that of a mortgagor in possession. With that exception the cases relied on are either cases where the interest of the insured was that of a conditional vendee, or cases where the policy was avoided for the breach of some other condition. In Williamson v.Orient Ins. Co., 100 Ga. 791, 28 S.E. 914,98 Ga. 464, 25 S.E. 560, a distinction was drawn between an ordinary mortgage which, under the State code, created merely a lien on the property, and an absolute conveyance of title intended as a security; the latter being held to avoid the policy as a breach of the condition. We think, however, that this distinction is not well taken, for, as pointed out in Imperial FireIns. Co. v. Dunham, 117 Pa. 460, 12 A. 668, the parties might have contracted with reference to the state of the title, but preferred to use the word "interest"; and so the condition is to be understood as referring to actual or equitable ownership, and not as requiring the insured to hold an absolute legal title. In accordance with this view, it is generally held that one in possession of real estate under an obligatory contract to buy, who has not paid in full and therefore has not yet become the legal owner, is nevertheless a sole and unconditional owner within the meaning of the standard form of policy. Arkansas Ins. Co. v.Cox, 21 Okla. 873, 98 P. 552, 20 L.R.A. (N.S.) 775, and note.

The rule appears to be otherwise in the case of conditional vendees of personal property bought on the instalment plan when the title remains in the seller.Arkansas Ins. Co. v. Cox, supra; Dumas v. NorthwesternNat. Ins. Co., 12 App. Cas. (D.C.) 245, 40 L.R.A. 358;Dow v. National Assurance Co., 26 R. I. 379, 58 A. 999;Lasher v. St. Joseph F. M. Ins. Co., 86 N.Y. 423;McWilliams v. Cascade F. M. Ins. Co.,7 Wash. 48, 34 P. 140.

So far as the authorities attempt to lay down any general rule, it is that if the interest of the insured is conditional, or contingent, or if it is for years only, or for life, or in common, it is not that of sole and unconditional ownership; but where the entire loss, if the property is destroyed by fire, must fall upon the party insured, the reason and purpose of this provision does not seem to exist.

We find but one case exactly in point. In that case, as in this, a bill of sale had been given absolute in form but really intended to secure the lender for the loan of the purchase-money with which the property was bought, and it was held, assuming that the bill of sale was delivered before the policy was issued, that the latter was not void under the condition as to sole and unconditional ownership. Kronk v. Birmingham FireIns. Co., 91 Pa. 300.

The second assignment of error raises the question whether the policy was avoided for a breach of the condition that the property should not be or become incumbered by a chattel mortgage. The term "chattel mortgage" is a term of art, and is to be construed, as it was doubtless intended to be understood, as referring to that particular kind of an incumbrance having the known legal effect of a chattel mortgage. The delivery and record of a bill of sale absolute in form, but intended as security, without change of possession, does not have the legal effect of a chattel mortgage. As was said in Morin v. Newbury, 79 Conn. 338, 340,65 A. 156, of such a transaction, "the instrument is neither in form nor name a mortgage. It is not one to which the law attaches any peculiar virtue when recorded. It had no place upon the records and could serve no legal purpose there. Its execution and delivery accomplished nothing, aside from its value as proof, which a parol agreement would not."

If the insurance company intended that the policy should be avoided in case the property was subjected to any kind of a lien which a court of equity might enforce, the language used is not appropriate to that end. Having regard to the rule that provisions for forfeitures contained in insurance policies are to be construed with reasonable strictness in favor of the insured, we think that these bills of sale, given under the circumstances stated in the finding, are not chattel mortgages within the meaning of the policy. Morin v. Newbury, 79 Conn. 338, 65 A. 156; State v. Hurlburt,82 Conn. 232, 236, 72 A. 1079; Rowland v. Home Ins.Co., 82 Kan. 220, 108 P. 118; Humboldt Fire Ins. Co. v.Ashley Silk Co., 107 C.C.A. 274, 185 F. 54;Phoenix Ins. Co. v. Fleenor, 104 Ark. 119,148 S.W. 650; Monongahela Ins. Co. v. Batson, 111 Ark. 167,163 S.W. 510.

The other assignments of error are dependent on the conclusions already stated, and do not require separate discussion.

There is no error.

In this opinion the other judges concurred.