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Kennedy v. Aetna Ins. Co.


January 16, 1936


Appeal from the District Court of the United States for the Eastern District of Pennsylvania; Oliver B. Dickinson, Judge.

Author: Thompson

Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.

THOMPSON, Circuit Judge.

These are appeals from judgments of the District Court for the Eastern District of Pennsylvania. The three cases were based on fire loss to certain premises covered by fire insurance policies issued by the appellees. By consent, they were tried together. The legal plaintiff, Kennedy, was owner of a first mortgage on the premises covered by the insurance policies in suit. The Corn Exchange National Bank, hereinafter referred to as Corn Exchange, owner of a second mortgage on the same premises, commenced foreclosure proceedings. It applied for and paid the premiums on the three fire insurance policies in suit. Each policy contained, inter alia, the following three clauses:

"Loss or damage, if any, under this Policy, shall be payable to John M. Kennedy, 3rd, as mortgagee, (3rd trustee) as interest may appear, and this insurance, as to the interest of the mortgagee (or trustee) only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property. * * *"

"It is understood that the buildings insured hereunder are now under foreclosure proceedings by the Corn Exchange National Bank & Trust Co. The premium being paid by the Corn Exchange National Bank & Trust Co. it is agreed that in event of loss, same will be adjusted with the Corn Exchange National Bank & Trust Co. and paid to them and John M. Kennedy, 3rd, Mortgagee, as interest may appear."

"This Company reserves the right to cancel this Policy at any time as provided by its terms, but in such case this Policy shall continue in force for the benefit only of the mortgagee (or trustee) for ten days after notice to the mortgagee (or trustee) of such cancellation and shall then cease, and this Company shall have the right, on like notice, to cancel this agreement."

After the bid at the sheriff's sale following judgment in the foreclosure suit, Winnet, attorney for the second mortgagee, Corn Exchange, orally advised Kennedy of the intention of Corn Exchange to abandon the property and cancel the policies. Corn Exchange returned the policies to the appellees. Prior to the expiration date of the policies, the premises were destroyed by fire. Thereafter Kennedy assigned his interest to Anna L. Bogash, the use plaintiff.

The issue is whether the policies were in force at the time of the fire or whether Kennedy had acquiesced in their cancellation. At the trial sufficient emphasis was placed upon the question whether the conversation between Kennedy and Winnet amounted to a consent by Kennedy to a cancellation of the policies. This issue was presented to the jury which, by its verdict, must have decided it in the affirmative. Another equally important question -- that of notice -- was over-looked. The appellant contends that by reason of the hereinbefore quoted covenant regarding notice, Kennedy was entitled to notice by the appellees of cancellation, that the failure of the insurance companies to notify Kennedy of the cancellation of the policies prevented the cancellations from being effective as to him, and that, therefore, as to Kennedy, they were in full force and effect at the time of the fire. This court has ruled that a mortgagee clause in a fire insurance policy results in an entirely separate insurance of the mortgagee's interest, which is not affected by acts of the owner. Queen Ins. Co. v. People's Union Sav. Bank (C.C.A.) 50 F.2d 63. Applying this principle to the instant case, the act of the second mortgagee in tendering the policies for cancellation does not affect the rights of the first mortgagee to notice of cancellation expressly guaranteed him by the above-quoted clause of the insurance policies. We think that the question whether Kennedy's conversation with Winnet amounted to a waiver of his right to notice of cancellation was one of the fact issues which should have been presented to the jury and that the refusal of the trial court to charge on points involving the question of notice amounted to reversible error. The judgments are reversed and new trials ordered.


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