On Appeal from the Superior Court of New Jersey, Law Division, Camden County.
Bischoff and Petrella. The opinion of the Court was delivered by Bischoff, P.J.A.D.
This appeal by Harleysville Mutual Insurance Company raises issues relating to the right of one insurance company, upon paying its insured for a loss sustained by fire to recover contribution from another insurer which had issued a policy covering the same loss where both policies contain substantially similar "Other Insurance" clauses.
The facts relating to the issues raised are not disputed. Herbert Pasker was the equitable owner in possession of a building owned by American Stores, pursuant to a contract of sale. The contract was signed Sept. 11, 1978; the price was $175,000 with settlement to take place within 60 days of the signing of the agreement. Pasker obtained fire insurance covering his interest in the building in the amount of $175,000, and on its contents in the amount of $128,000 from Harleysville.
The seller also carried fire insurance on the building under a policy covering this building and others that it owned. The insurer on this policy was Industrial Risks Insurers (IRI).
On Oct. 31, 1978, prior to settlement, a fire occurred which completely destroyed the building and contents. Pasker filed suit against both Harleysville and IRI requesting payment under either or both policies. Both insurance companies filed answers to plaintiff's complaint and crossclaimed against each other for indemnification and contribution. Harleysville paid plaintiff the full amount of its policy for the building and $50,000 for the lost contents. Harleysville then moved for a summary judgment on its crossclaim for indemnification and
contribution. The trial judge denied the motion. Pasker's claim against IRI was then settled for $60,000 and the trial judge dismissed Harleysville's claim against IRI with prejudice. Harleysville appeals from the denial of its motion for summary judgment and the dismissal of its crossclaim against IRI.
Harleysville first contends that "When property which is the subject of a contract of sale is destroyed by fire after the signing of the contract and before settlement, the proceeds of any insurance maintained by the vendor are subject to a constructive trust in favor of the purchaser" and the proceeds of the vendor's insurance are to be applied to the vendee's benefit to reduce the purchase price with any surplus payable to the vendee by the vendor, citing Coolidge & Sickler, Inc. v. Regn, 7 N.J. 93 (1951); Millville Aerie, F.O. of E. v. Weatherby, 82 N.J. Eq. 455, 457-458 (Ch.1913); P.R. DeBellis v. Lumbermen's Mutual Casualty Co., 77 N.J. 428, 438 n. 2 (1978). Harleysville then concludes this contention stating "Therefore the proceeds from the policy of insurance issued by IRI to which Acme [American Stores] has a claim are impressed with a constructive trust in favor of Pasker and Harleysville, as Pasker's subrogee."
We agree that under the authorities cited the vendee under a valid contract of purchase becomes the equitable owner of the property, the vendor retaining legal title as security for the unpaid purchase price. Further, that the proceeds of any policy of insurance where loss has occurred subsequent to the execution of the contract, inures to the benefit of the vendee. The vendor, as trustee, holds the money as representing the property that has been destroyed. DeBellis, supra, 77 N.J. at 438 n. 2. It does not follow however that the principles of subrogation are applicable to confer upon Harleysville any rights to the funds as Pasker's subrogee.
It is a general principle of subrogation that an insurer, upon paying a loss suffered by a victim of a tortfeasor's negligence, is subrogated to the victim's right of action against the person responsible for the loss. The basic principles of subrogation
are explained by the Supreme Court in Aetna Ins. Co. v. Gilchrist Brothers, Inc., 85 N.J. 550, 560-561 (1981) as follows:
Subrogation may exist by virtue of (1) an agreement between the insurer and the insured, 44 Am.Jur. 2d, Insurance, § 1820 at 746, (2) a right created by statute, 16 Couch on Insurance 2d, § 61:6 at 240 (1966), or (3) a judicial "device of equity to compel the ultimate discharge of an obligation by the one who in good conscience ought to pay it." Standard Accident Ins. Co. v. Pellecchia, 15 N.J. 162, 171 (1954); Ambassador Ins. Co. v. Montes, 76 N.J. 477, 484 (1978). The underpinning of subrogation is its derivative nature. The insurer obtains only the right of the insured against the tortfeasor subject to defenses of the wrongdoer against the insured. Hartford Fire Ins. Co. v. Riefolo Constr. Co., 81 N.J. 514, 523 (1980). The general rule has been stated as follows:
Consequently, the insurer can take nothing by subrogation but the rights of the insured, and is subrogated to only such rights as the insured possesses. This principle has been frequently expressed in the form that the rights of the insurer against the wrongdoer cannot rise higher than the rights of the insured against such wrongdoer, since the insurer as subrogee, in contemplation of law, stands in the place of the ...