EMPLOYERS'FIRE INS. CO. v. British America Assur. Co.Annotate this Case
131 S.E.2d 36 (1963)
259 N.C. 485
The EMPLOYERS' FIRE INSURANCE COMPANY, a corporation v. BRITISH AMERICA ASSURANCE COMPANY, Sam E. Wheeler and wife, Mildred C. Wheeler, T. S. Royster, Trustee, J. L. Parrish, and Mrs. Ruth C. Currin.
Supreme Court of North Carolina.
May 22, 1963.
*37 Claude Bittle, Durham, for appellant.
Dupree, Weaver, Horton & Cockman by Walter L. Horton, Jr., Raleigh, for plaintiff appellee.
The question presented by the appeal is: Should each of the insurers contribute to *38 the payment of the loss in the proportion which the sum insured bears to the total insurance, or must plaintiff pay all the loss?
Both a mortgagor and a mortgagee have an insurable interest in encumbered property. Shores v. Rabon, 251 N.C. 790, 112 S.E.2d 556; Jeffreys v. Boston Ins. Co., 202 N.C. 368, 162 S.E. 761; Wayne Nat. Bank v. National Bank of La Grange, 197 N.C. 68, 147 S.E. 691.
The mortgagee's interest is limited to the debt due him. The standard policy, G.S. § 58-176, expressly provides the insured shall not collect "in any event for more than the interest of the insured." When a mortgagee purchases with his funds insurance solely for his protection, the insurer, upon payment of the mortgagee's loss as provided in the policy, is subrogated to the rights of the mortgagee against the mortgagor. Bryan v. Old Colony Ins. Co., 213 N.C. 391, 196 S.E. 345; Batts v. Sullivan, 182 N.C. 129, 108 S.E. 511; Stuyvesant Ins. Co. v. Reid, 171 N.C. 513, 88 S.E. 779; 29A Am.Jur. 807; 46 C.J.S. Insurance § 1213, p. 183. Where, however, the insurance is procured by the mortgagee pursuant to the authorization and at the expense of the mortgagor, no right of subrogation exists and the amount paid by the insurer must be applied to discharge or reduce mortgagor's obligation to mortgagee. Buckner v. United States Fire Ins. Co., 209 N.C. 640, 184 S.E. 520; Batts v. Sullivan, supra; Concord Union Mutual Fire Ins. Co. v. Woodbury, 45 Me. 447; Hartford Fire Ins. Co. v. Bleedorn, 235 Mo.App. 286, 132 S.W.2d 1066; Prentiss-Wabers Stove Co. v. Millers' Mut. Fire Ins. Ass'n, 192 Wis. 623, 211 N.W. 776, 213 N.W. 632; Leyden v. Lawrence, 79 N.J.Eq. 113, 81 A. 121; 46 C.J.S. Insurance § 1213, p. 182; Couch on Insurance, sec. 2006F.
It is established by the findings that the premiums paid appellant were charged to the mortgagor and were a part of the debt which the owner must pay. If appellant discharges its obligation to its named insured who was acting with the authority of and at the expense of the mortgagor, it would have no right to assert a claim against the owner of the property. The payment so made would reduce or discharge the debt, dependent upon the amount of the loss and the debt owing. Payment made by plaintiff under the policy naming mortgagor as the insured but with a provision for the benefit of the mortgagee to the extent of his interest, i.e., the debt owing, would likewise be applied to reduce mortgagor's debt.
Ervin, J., writing in Green v. Fidelity-Phenix Fire Ins. Co., 233 N.C. 321, 64 S.E.2d 162, said: "It is the accepted position in North Carolina and most other states that when the standard or union mortgage clause is attached to or inserted in a policy insuring property against loss, it operates as a distinct and independent contract between the insurance company and the mortgagee, effecting a separate insurance of the mortgage interest. Stockton v. Atlantic Fire Insurance Co., 207 N.C. 43, 175 S.E. 695; Mahler v. Milwaukee, Mechanics' Insurance Co., 205 N.C. 692, 172 S.E. 204; Bennett v. Provident Fire Insurance Co., 198 N.C. 174, 151 S.E. 98, 72 A.L.R. 275; Wayne Nat. Bank v. National Bank of La Grange, 197 N.C. 68, 147 S.E. 691; Federal Land Bank [of Columbia] v. Atlas Assurance Co., 188 N.C. 747, 125 S.E. 631; Federal Land Bank [of Columbia] v. Globe & Rutgers Fire Ins. Co., 187 N.C. 97, 121 S.E. 37; Annotation: 124 A.L.R. 1034." This declaration of the law was quoted by Moore, J., in Shores v. Rabon, supra. He added: "This principle has been so stead-fastly adhered to by this Court and for such long duration that it must be assumed that insurance companies contract and fix rates in full contemplation of the risk imposed thereby." No reason has been advanced which, in our opinion, would warrant us in reversing the conclusion reiterated as late as January 1960, Shores v. Rabon, supra.
*39 We have then two policies of insurance issued with the authority and at the expense of the mortgagor payable to the mortgagee to the extent of his debt. Each policy insures the same property against the same peril. The mortgagee can proceed against either of the insurers and such payment as the insurer makes must be applied as a credit on the mortgage debt. The loss is less than the debt. The total insurance substantially exceeds the mortgage debt. Must the loss be paid by one of the insurance companies or should it be apportioned?
Each policy provides: "This Company shall not be liable for a greater proportion of any loss than the amount hereby insured shall bear to the whole insurance covering the property against the peril involved, whether collectible or not." The quoted provision is a part of the standard policy prescribed by statute. G.S. § 58-176. The court correctly held that the amount to be paid to the mortgagee should be apportioned in the proportion which each policy bore to the total insurance available for that purpose. Federal Land Bank of Columbia v. Globe & Rutgers Insurance Co., 187 N.C. 97, 121 S.E. 37, and Federal Land Bank of Columbia v. Atlas Assurance Corp., 188 N.C. 747, 125 S.E. 631; Eddy v. London Assurance Corporation, 143 N.Y. 311, 38 N.E. 307, 25 L.R.A. 686; Camden Fire Ins. Ass'n v. Sutherland, Tex.Com.App., 284 S.W. 927; Hagan v. Hudson Ins. Co., 48 Ga.App. 558, 173 S.E. 477; Lipsitz v. Union Ins. Soc. Limited, 149 Misc. 809, 268 N.Y.S. 179
The element which distinguishes this case from McCoy v. Continental Ins. Co., 326 Mich. 261, 40 N.W.2d 146, and similar cases relied on by appellant is the fact that the insurance in those cases was not taken with the authority and at the expense of the mortgagor. Those cases belong to a group illustrated by Stuyvesant Ins. Co. v. Reid, supra.
The judgment is