Story Case

James Pugh owned a storehouse valued at $10,000, upon which Oscar Brown held a mortgage to the extent of $9,000. Pugh took out an insurance policy upon the house for $6,000 after the mortgage was made. A fire destroyed the building and Pugh tried to recover upon the policy. The insurance company put the mortgage in as defense. Is this correct?

Ruling Court Case. Strong Vs. The Manufacturers' Insurance Company, Volume 10 Pickering, Massachusetts Reports, Page 40

Strong was the owner of a house and lot He mortgaged the estate to one, Damon, to secure the payment of a note for $300, which note, at the time of this action, had not been paid. Soon thereafter he gave a second mortgage to Damon to secure another note which Damon and Strong had jointly signed. Strong paid one-half of this note, and a new note, signed by him and others was given for the balance. Damon assigned both mortgages to one Stebbins. Thereafter, Strong's equity of redemption was seized, by virtue of three executions issued in pursuance of judgments recovered against Strong. It was then that Strong insured the house against loss by fire in the Manufacturers' Insurance Company. The equity of redemption was sold afterwards, but subsequently, was reconveyed to Strong, after which the house was destroyed by fire. Strong brought this action to recover on the policy.

The company urged that the policy was void, because Strong had no insurable interest in the property insured at the time the policy was executed.

Mr. Justice Wilde said: "Upon the facts stated, we think there can be no question that Strong had an insurable interest in the house insured, at the time the policy was effected, for although a policy of insurance is a contract of indemnity, and wager policies are not to be countenanced, yet a legal title to the property insured is not necessary to give validity to such a contract. A mere equitable title, or any qualified property in the thing insured may be legally protected by insurance, and it is very clear that Strong not only had an insurable interest, but that his interest was substantially the same as it would have been, had the property insured been free from any incumbrance, for he was liable to the mortgagee and the attaching creditor for the whole amount of the debts for which they had obtained liens, and it is well settled that a mortgagor may protect his equitable interest at any time until actual foreclosure of the mortgage." Judgment was given for Strong.

Ruling Law. Story Case Answer

So long as the mortgage has not been foreclosed, the mortgagor is regarded as the owner thereof. He has a sufficient interest therein to insure. If the mortgage has been foreclosed, he still has an insurable interest, if his right to redeem remains.

In the Story Case, therefore, Pugh can recover to the extent of the losses which he has suffered.