Are the sole owners of the capital stock of a corporation, who have procured policies of insurance against fire, running to themselves, in their individual names, upon a building, the title to which was in the corporation, debarred from any recovery on the policies by the provisions therein to the effect that the policies shall be void if the interest of the assured is not the sole and nnconditional ownership of the property described, or if that interest is not truly stated to the companies, or in the policies or in the indorsements thereon? If so, is a mortgagee whose interest is insured by the “union mortgage clause” attached to such policies also debarred from any recovery by these provisions of the policies? These are the principal questions presented in these cases. They were raised by separate exceptions to the refusal of the court below to instruct the jury' to return a verdict in favor of either of the plaintiffs in error in any of these cases at the close of the trial, when the evidence established the following undisputed facts:
In 1888 the defendants in error William G. Bohn and Conrad Bohn were the owners in fee simple of the building destroyed, and the lot on which it stood. Mr. Doud, the agent of the plaintiff in error the Syndicate Insurance Company, solicited their insurance, and William G. Bohn, one of the defendants in error, told him that he and Conrad Bohn were the owners of the building, and directed him to insure it in the companies he represented, in their names. Thereupon he issued to them a policy of the Syndicate Insurance Company, for the sum of $5,000, for the term of one year, covering this building, and delivered it to the Bohns. In October, 1888, they mortgaged the insured property to the defendant in error the National Life Insurance Company, for $25,000, and covenanted in the mortgage to keep it insured for that amount for the benefit of the mortgagee. Thereupon the policy of the Syndicate Insurance Company was presented to its agent,
“It is hereby agreed that any loss or damage that may be ascertained and proved io be dun under this policy to the assured shall be held payable for the account of said assured to the National Life Insurance Co., mortgagee or beneficiaries, or its assigns, subject to the following stipulations: (1) It is agreed that this insurance, as to the interests of the above-named mortgagee or beneficiary, or its assigns, only, shall not be invalidated by any act, or neglect of the mortgagor or owner of the property insured, nor by the occupancy of the premises for purposes more hazardous than are permitted by the terms of this policy, nor by any change in title or possession, whether by legal process, voluntary transfer, or conveyance of the premises, or for nonoccupation of the premises: provided, that the mortgagee or beneficiary shall notify this company of any change of ownership or increase of hazard which shall come l.o the knowledge of said mortgagee or beneficiary, and shall have permission for such change of ownership or such increased hazard, as shall come to his notice, duly indorsed on this policy: and provided, further, that every increase of hazard not permitted to the mortgagor or owner shall be paid by the mortgagee or beneficiary, on reasonable demand, and after demand made by this company upon and refusal by the mortgagor or owner to pay, according to the established scale of rate; the company reserving the right to cancel the policy at any time on the terms in said policy provided, on giving to the mortgagee ten (10) days’ notice of their intention so to do, and after such ton (10) days the policy and this agreement shall be void. The foregoing stipula tions, however, shall not be held, under any circumstances, to modify the terms of contribution provided in the printed conditions of this policy, in case of other insurance ón the same property; it, being expressly understood that this insurance is upon the interest of said mortgagor or owner, or assigns, and that other insurance on the interest of said mortgagor or owner, or assigns, is to contribute according to said conditions. (2) It is also agreed that whenever this company shall pay to the mortgagee or beneficiary any sum for loss under this policy, and shall claim that, as to the mortgagor or owner, no liability therefor existed, it shall at, once, and to the extent of such payment, be legally subrogated to all the rights of the party to whom such payment shall be made, under any and all securities held by such party on the property in question, for the payment of said debt. But such subrogation shall be In subordination to the claim of said party for the balance of the debt so secured, or this company may, at its option, pay to said mortgagee or beneficiary the whole of the debt so secured, including such sums as said mortgagee or beneficiary may then have paid for taxes or fire insurance upon the property described in such mortgage or trust deed, pursuant to the terms thereof, with all interest that may have accrued thereon to the date of such payment, and shall thereupon receive from the party to whom such payments shall be made an assignment and transfer of said debt, with all the- securities held by said party on the property in question for the payment thereof. If the above-named mortgagee should assign this mortgage, the above agreement shall be binding between said insurance company and the assigns without notice to said insurance company of said assignment.”
Tlie original policy of the Syndicate Insurance Company, and the policy here in suit, insured the Bohns against loss or damage by fire to “their four-story brick warehouse * * * situated on tax lot 12, Omaha, 2SJeb., * * * not exceeding the sum insured, nor the interest of the assured therein,” and contained the following provisions;
“The assured, by the acceptance of this policy, hereby covenants and agrees (1) that any application, plan, survey, or description referred to in this policy is true, and shall be and form a part of this policy; that no fact material to the risk, or relating to its condition, situation, or ownership, has been concealed; and that the interest of the assured therein has been truly stated to*168 this company. (If the interest of the assured be other than the unconditional and sole ownership of the property, or if the building insured stands on leased ground, it must be so expressed in the policy.)” “This policy shall become void and of no effect (1) by the failure or neglect of the assured to comply with its terms, conditions, and covenants; (2) by the sale or transfer, or any change in the title or possession of the property insured (except in case of succession by reason of death of the assured), whether by legal process or judicial decree, or voluntary transfer or conveyance.”
In May, 1889, the Bohns conveyed the building insured, and the lot on which it stood, by warranty deed, subject to the $25,000 mortgage, to the Bohn Sash & Door Company, a manufacturing corporation, the capital stock of which they owned;' but this fact was unknown to all the other parties to these actions until after the fire. About the 1st of September, 1889, Mr. Doud, the agent of the Syndicate Company, inquired of the Bohns whether he should renew the policies he had issued on this building, and they directed him to do so; and thereupon he issued a new policy of the Syndicate Company for the term of one year, and delivered it to the mortgagee. He told the Bohns that he had lost the agency of one of the companies that had issued a policy to them the year before, and that he was not the agent of the New Hampshire Fire Insurance Company, but that he proposed to place $2,500 with that company, and they authorized him to do so. He then told the agents of that company that' the Bohns owned the building, and directed them to issue in their name a policy of that company, for $2,500, for one year, and to attach the union mortgage clause to it. They did so, and the policy was delivered to the mortgagee. About the 1st of September, 1890, Mr. Doud again inquired of the Bohns if he should renew the policies. They authorized him to do so, and he issued the policy of the Syndicate Company, and procured the issue of the policy of the New Hampshire Company, here in suit. The policy of the plaintiff in error the New Hampshire Fire Insurance Company declares that that company insures William, Gr. and Conrad Bohn against loss or damage by fire, except as thereinafter provided, to an amount not exceeding $2,500, “on their four-story brick warehouse, situate on tax lot 12, Omaha, Heb.,” and provides that:
“This entire policy shall be void if the insured has concealed or misrepresented', in writing or otherwise, any material fact or circumstance concerning this insurance, or the subject thereof, or if the interest of the insured in the property be not truly stated herein.” “This entire policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void * * * if the interest of the insured be other than unconditional and sole ownership, or if the subject of insurance be a building on ground not owned by the insured in fee simple.”
The building insured was destroyed by fire May 12, 1891. It was then worth $34,000. The amount of insurance upon it under 'these and similar policies, payable to the mortgagee under the mortgage clause we have set forth above, was $25,000, but payments had been made upon the mortgage debt until there-was only about $21,000 owing upon it. The two policies here in suit contained the usual contribution clause. The mortgagee, the Hational Life Insurance Company, and the Bohns, brought separate actions upon each of these policies. These actions were consolidated by order of the court,
By the provisions of these policies which we ha.ve quoted, the Bobus made plain contracts with the insurers that they had truly stated their interest in the property insured, and that if that interest was not the sole and unconditional ownership of that property the policies should he void. At the time these policies were issued, and at the time of the fire, they were neither the sole and unconditional owners of this property, nor had they any legal title to it, or any equitable; title that they could convert into a legal title. The legal title was in a corporation, and they were mere stockholders in that corporation. They could not convey or incumber the title to this property by their deed or mortgage, nor could the title to it be passed or affected by any sale of their interest in it under judgment and execution against them. Stockholders of a corporation are entitled to a distributive share of its profits while it continues in operation, and, at its dissolution, to a just proportion of the proceeds of the corporate assets remaining, if any, after all the corporate debts are paid, but they are far from being the unconditional owners of the property of the corporation. The title and ownership of such property is vested in the corporation itself, — in an entity as distinct and separate from its stockholders as is any individual trustee from his cestui que trust. The corporation itself can sell, convey, mortgage, and deal with the corporate property as its own, subject only to the restrictions of its charter, while its stockholders can do none of these things. These stockholders were not, therefore, the sole or unconditional owners of the property described in these policies. Riggs v. Insurance Co., 125 N. Y. 7, 25 N. E. 1058; Plimpton v. Bigelow, 93 N. Y. 593; Van Allen v. Assessors, 3 Wall. 573; McCormick v. Insurance Co., 66 Cal. 361, 5 Pac. 617; Philips v. Insurance Co., 20 Ohio, 174, 184.
It is not unworthy of notice here that one of the errors assigned in this record is that the court below excluded evidence of the insolvency of the Bohn Sash & Door Company at the time of the fire. This would have been a fatal error, if it could be conceded that the interest of the Bohns, as stockholders, was insured by these policies. The insurance companies were not liable, in any event, to pay to the Bohns any more than the loss that resulted to their interest from this fire. The extent of that loss was much less if the corporation was insolvent, if the amount of its debts was greater than the value of its assets, and if its stock was consequently worthless, than if the value of its assets exceeded its debts by the par value of its stock, as the court seems to have conclusively presumed.
But we are unable to conclude that the interest of the Bohns, as stockholders of this corporation, was insured by these policies. These
These'contracts are neither novel nor peculiar. Contracts practically identical in legal effect are, and have been for many years, common to nearly all policies upon buildings. Their terms are so familiar to insurers and insured that a policy upon a building, that did not contain some of them would be nearly as unique as a decree of an English court in Horman French in this decade. Hor are they unjust, unreasonable, or unfair contracts. They rest upon a sound policy of the business of insurance, — a policy founded in reason, and in accord with an enlightened public policy; the policy of reducing the moral hazard to which the underwriter is exposed. “Moral hazard,” in insurance, is but another name for a pecuniary interest in the insured to permit the property to burn. Statistics, experience, and observation all teach that the moral hazard is least when the pecuniary interest of the insured in the protection of the property against fire is greatest, and that the moral hazard is greatest when the insured may gain most by the burning of the property. Take the case at bar. The property described in these policies that was destroyed by ñre was worth $34,000. It was insured for $25,000, payable to a mortgagee whose interest was but $21,000. If the Bohns had beeu the owners of this property, and had recovered the entire $25,000 insurance, they would have lost $9,000 by the fire. But suppose that the corporation that owned the property was insolvent, as the plaintiffs in error offered to prove, and that the stock of . the Bohns was worthless. In that.event, if they could recover on all of these policies, they would make a clear profit of $4,000 by the burning of this building, after their mortgage debt was paid. It goes without saying that the moral hazard — the danger that the property would burn — was vastly greater in the latter than in the
It is contended that the contracts in these policies, which exclude the Bohns from insurance under them upon any interest but that of unconditional ownership, are without binding force, because no inquiry respecting their title was made by the companies, and no statement concerning it was made by the Bohns, when these policies were issued. But neither inquiry nor statement before the issue of the policies was requisite to the validity of these contracts. The policies themselves, containing, as they did, the contracts that they should be void if the interest of the assured had not been truly stated to the company, or if it was not truly stated in the policy, or if it was not the sole and unconditional ownership, and a description of it was not indorsed on the policy, were pointed inquiries of the assured whether their interest was the sole and unconditional ownership of the property described, and their silence and acceptance of the policies was the answer. The policies themselves' were notice to the Bohns that the companies deemed their interest that of unconditional ownership, that.they insured them against loss to that interest only, and that they expressly excluded every other interest from the insurance unless the Bohns immediately no tilled them that they held a different interest, and caused a true description of it 1o be written into or indorsed upon the policies. The silent acceptance of the policies by the Bohns closed these contracts, and hound them to the agreement tendered by the policies, that every interest of theirs but that of unconditional ownership was excluded from the promised indemnity. Insurance Co. v. Lawrence, 2 Pet. 25, 49; Waller v. Assurance Co., 10 Fed. 232; Collins v. Insurance Co., 44 Minn. 140, 46 N. W. 906; Lasher v. Insurance Co., 86 N. Y. 423, 427; Weed v. Insurance Co., 116 N. Y. 106, 113, 22 N. E. 229; Diffenbaugh v. Insurance Co., 150 Pa. St. 270, 24 Atl. 745; Fuller v. Insurance Co., 61 Iowa., 350, 16 N. W. 273; Waller v. Assurance Co., 64 Iowa, 101, 19 N. W. 865; Mers v. Insurance Co., 68 Mo. 127, 132; McFetridge v. Insurance Co. (Wis.) 54 N. W. 326; Henning v. Assurance Co. (Iowa) 12 N. W. 308; Insurance Co. v. Boulden (Ala.) 11 South. 771; Insurance Co. v. Smith, 92 Ala. 428, 9 South. 327.
Finally it. is said that the plaintiffs in error are estopped from enforcing, and have waived, these provisions of the policies, because, after they had heard a rainor that the Bohns bad conveyed the properly, and after the latter had furnished proofs of loss under the policies, the insurance companies demanded that they should submit to an examination under oath, as provided by the policies, and (hat they should produce papers, vouchers, and plans and specifications for the building destroyed, and pursuant; to these demands the Bolins incurred the expense of employing an attorney to attend such an examination that was never had. This position is untenable,
The contracts contained in the provisions of these policies we have been considering were, then, such as it was customary to make in cases like those before us. The Bohns themselves had made such contracts twice, before the policy in suit was issued, with one of the plaintiffs in error, and once with the other. The object of these contracts was one fit to be attained. • It was the reduction of the moral hazard in fire insurance, and the consequent reduction of the unnecessary destruction of property. The contracts were fair, plain, and unequivocal. By their very terms, they excluded the Bohns from all insurance under these, policies unless they were the sole and unconditional owners of the property they described. They were not the owners of it at all. They had neither the legal title, nor any equitable title that they could convert into a legal title. It is not the province of the court to abrogate, to modify, or to refine away these contracts, nor to make new contracts for the parties; and these contracts, as they stand, form, an impregnable defense to the actions against these insurance companies brought by the Bohns. The court should so have instructed the jury.
Our conclusion is that provisions in policies of insurance to the effect that, the policies shall be void if the interest of the insured is not the sole and unconditional ownership of the property described in the policies, or if that interest is not truly stated to the companies, or in the policies, or in the indorsements thereon, constitute a complete defense to actions by the sole stockholders of a corporation upon policies issued to themselves, as owners, upon property owned by the corporation.
Let us now turn to the judgments in favor of the mortgagee. Are these provisions of the policies alike fatal to any recovery in its behalf? The plaintiffs in error insist that they are. They say that the only interest insured here is that of the mortgagors; that the mortgage clause simply makes the proceeds of that insurance payable to the mortgagee to the extent of the mortgage debt; that the facts that the balance of the proceeds belong to, and all of these proceeds, if the debt is paid by the mortgagors, revert to, the mortgagors, and the very terms pf the first sentence of the mortgage clause, viz. “It is
In 1878 one of these contracts came before the court of appeals of the state of New York in Hastings v. Insurance Co., 73 N. Y. 141, 156, 154, for judicial interpretation. It was a mortgage clause attached to an original policy running to the mortgagor, and, so far as the question we are now considering is concerned, the terms of that clause were identical with those contained in the contract before us. It provided that “this insurance, as to the interest of the mortgagee only, shall not be invalidated by any act or neglect of the mortgagor or owner of the property insured.” The original policy contained’ a contribution clause to the effect that, if there was any other insurance on the property, whether prior or subsequent to the issue of the policy, the assured should be entitled to no greater proportion of the loss sustained than the sum thereby insured bore to the whole amount of insurance on the property. The mortgage clause contained no such provision. Before either the policy or the mortgage clause was issued, the mortgagor had procured $4,000 insurance on the same property in another company, but neither the insurance company nor the mortgagee was aware of this fact until after the loss. The question presented was whether or not the mortgagee’s insurance was reduced, under the contribution clause of the original policy, by the prior insurance obtained by the mortgagor. The court held that it was not; that the mortgage clause constituted a new and independent contract between the mortgagee and the insurance company, and effected a separate insurance of his interest, unaffected by any act or neglect of the mortgagor, of which he was ignorant, whether that act or neglect was prior or subsequent to the issue of the mortgage clause. In 1882, in Meriden Sav. Bank v. Home Ins. Co., 50 Conn. 396, the question arose whether or not a mortgagee, who had made a collateral agreement with the insurance company, similar in terms to the mortgage clause before us, as to all the insurance policies of that company which the mortgagee held, could maintain an action on that agreement, and a policy referred to therein, without joining the mortgagor; and the supreme court of Connecticut held that it could, cited Hastings v. Insurance Co., supra, with approval, and declared that, while they would not then hold that the collateral agreement was a distinct and independent contract of insurance, it was “an agreement relating to an existing policy, by which certain conditions are dispensed with, and certain privileges are secured to the insurers which they would not otherwise have, and the plaintiffs are made a party to the contract of insurance.” In 1883, in Davis v. Insurance Co., 135 Mass. 251, a case arose in which a mortgagor, whose policies provided that they should become void if the property was sold or transferred, had sold and conveyed the property insured during the term of his policies, and the mortgagees had subsequently entered and taken possession of it for default in the payment of the mortgage debt. The mortgagees knew that the mortgagor had conveyed away the property, and without stating this fact to the
We have reviewed the two cases last adverted to at some length, because they are the only cases which treat of this mortgage clause that have been called to our attention by the counsel for the insurance companies in support of his contention, or that are claimed by him to be in conflict with the decision of the New York court; of appeals in Hastings v. Insurance Co. As, we have seen, these two cases are not in conflict with that decision. The courts that rendered these decisions neither considered nor decided the question presented in the New York case. On the other hand, the decision in that case has been uniformly cited, with approval in every case in which any question concerning the construction of this mortgage clause has arisen, from 1878 to the present time. City Five Cents Sav. Bank v. Pennsylvania, Ins. Co., 122 Mass. 165; Insurance Co. v. Floyd, 19 Hun, 287; Insurance Co. v. Olcott, 97 Ill. 439, 455. And it has lately been followed upon the precise question here at issue by the supreme court of South Dakota in Onnsby v. Insurance Co., 58 N. W. 301, 302. What, now, was the situation and relation of the parties to this contract in the case at hand when this mortgage clause was issued? During the 10 years which followed the announcement of the decision in Hastings v. Insurance Co., supra, the old form of indorsement, “Loss, if any, payable to ———, mortgagee, as his interest may apear,” gradually disappeared from the face of insurance policies, and this mortgage clause, or a similar contract, took its place. That decision had settled that in New York, at least, such a clause protected the mortgagee against any act or neglect of the mortgagor, whether prior or subsequent to its issue. That decision had been repeatedly approved by courts of high rank, and never disapproved. Under these circumstances, the Bolins, in 1888, . mort
Our conclusion is that the effect of the union mortgage clause, when attached to a policy of insurance running to the mortgagor, is to make a new and separate contract between the mortgagee and the insurance company, and to effect a separate insurance of the interest of the mortgagee, dependent for its validity solely upon the course of action of the insurance company and the mortgagee, and unaffected by any act or neglect of the mortgagor, of which the mortgagee is ignorant, whether such act or neglect was done or permitted prior or subsequent to the issue of the mortgage clause.
In view of this conclusion, a careful examination of the records discloses no prejudicial error in the trial of the cases between the mortgagee and the insurance companies, and the judgments in those cases must be affirmed. The two judgments in favor of William G-. Bohn and Conrad Bohn against the plaintiffs in error, respectively, must be reversed, and the cases remanded, with directions to award a new trial, and it is so ordered.