Castellain v Preston
| Jurisdiction | England & Wales |
| Date | 1881 |
| Year | 1881 |
| Court | Court of Appeal |
Insurance (Fire) - Contract of Indemnity - Vendor and Purchaser - Insurance by Vendor - Fire after Contract for Sale, but before Completion - Right to Insurance Moneys - Subrogation.
According to the doctrine of subrogation, as between the insurer and the assured, the insurer is entitled to the advantage of every right of the assured, whether such right consists in contract, fulfilled or unfulfilled, or in remedy for tort capable of being insisted on or already insisted on, or in any other right, whether by way of condition or otherwise, legal or equitable, which can be, or has been, exercised, or has accrued, and whether such right could or could not be enforced by the insurer in the name of the assured, by the exercise or acquiring of which right or condition the loss against which the assured is insured, can be or has been diminished.
A vendor contracted with a purchaser for the sale, at a specified sum, of a house, which had been insured by the vendor with an insurance company against fire. The contract contained no reference to the insurance. After the date of the contract, but before the date fixed for completion, the house was damaged by fire, and the vendor received the insurance-money from the company. The purchase was afterwards completed, and the purchase-money agreed upon, without any abatement on account of the damage by fire, was paid to the vendor:—
Held, in an action by the company against the vendor, that the company were entitled to recover a sum equal to the insurance-money from the vendor for their own benefit.
APPEAL of the plaintiff from the judgment of Chitty, J., in favour of the defendants. The facts are fully stated in the report of the proceedings before Chitty, J.F1, and it is necessary here only to briefly recapitulate them.
The plaintiff sued on behalf of the London, Liverpool, and Globe Insurance Company to recover a sum of 330l. with interest since the 25th of September, 1878. On the 25th of March, 1878, the defendants, as owners of certain lands and buildings in Liverpool, effected an insurance on the buildings against loss by fire, and they kept the policy on foot by payment of the premiums until after the fire hereinafter mentioned occurred. The policy was in the usual form, giving the insurers the option of reinstating the property. On the 31st of July, 1878, the defendants contracted to sell the land and the buildings to their tenants, Messrs. Rayner, for the sum of 3100l., and they received a deposit. The contract provided that the time of the completion should be such day within two years from the date as the vendors should name. On the 15th of August in the same year a fire occurred damaging part of the buildings. A claim was made on behalf of the defendants, and after negotiation as to the sum to be paid, the amount of the claim was ultimately fixed at 330l., and that sum was in fact paid on the 25th of September, 1878, by the insurers, who were at that time ignorant of the existence of the contract for sale. On the 25th of March, 1879, the defendants named the 5th of May as the day of completion, and on the following 12th of December the conveyance was executed and the balance of the purchase-money paid.
The present action was commenced on the 31st of October, 1881.
March 6, 10, 12. Charles Russell, Q.C., and A. Aspinall Tobin, for the plaintiff. A policy of fire-insurance is a contract of indemnity, and the assured cannot derive a profit because the thing insured has been damaged by the peril insured against: Darrell v. Tibbitts.F2 The insurer, who pays the sum insured, is entitled to every benefit whereby the loss is diminished: Randal v. CockranF3. The defendants having received the agreed amount of the purchase-money without any abatement, must be considered to stand in the same position as a ship-owner, who, although he has received the amount due upon a policy of insurance after the happening of a loss, refuses to give up the salvage to the underwriters; but it is clear law that the assured cannot withhold the salvage from the insurer: 2 Arnould on Marine Insurance, part 3, ch. 6, pp. 935, 936 (5th ed.) The decision of the House of Lords in Burnand v. RodocanachiF4, is not at variance with the authorities above cited; in that case what the shipowners had received pursuant to the Act of Congress of the United States was a pure gift; it did not accrue to them by way of salvage, and therefore they were entitled to hold it as against the underwriters.
In delivering judgment, Chitty, J., relied much on two cases decided in American Courts: King v. State Mutual Fire Insurance Co.F5 and Suffolk Fire Insurance Co. v. Boyden.F6 But they were decisions depending upon the law as to mortgagors and mortgagees, and moreover were pronounced in the Courts of one state (Massachusetts). Many American cases of a contrary tendency may be cited: Tyler v. AEtna Fire Insurance Co.F7; AEtna Fire Insurance Co. v. TylerF8; Kernochan v. New York Bowery Fire Insurance Co.F9; Insurance Co. v. Woodruff.F10 The defendants could not have recovered upon the policy, after they had executed the conveyance to the purchasers; they then stood in a different position from the unpaid vendor of goods, who retains them in his possession under his lien, and who may have an insurable interest sufficient to support a marine policy; for it depends upon the words used, who has the right to sue in the event of a loss; but even in the case of marine policies the insurance is for the benefit of the person actually interested; it is the interest which is insured, not the goods themselves.
[BRETT, L.J. It may be said that the goods themselves are insured, but the assured can recover only to the extent of his interest.]
If the defendants could not recover upon the policy for a loss happening after the conveyance to the purchasers, surely they cannot keep the money paid by the plaintiff's company for a loss happening before the conveyance but after the entering into the contract of sale, they having received the purchase-money without any abatement. The purchase having been completed, it must be taken that the defendants had no interest in the house at the time when the fire occurred; and it is a rule of insurance-law that the assured can only recover to the extent of his interest; thus, if a tenant for life and a remainderman insure a house against fire, each, upon a loss happening, can recover only the value of his interest: per Mellish, L.J., in North British and Mercantile Insurance Co. v. London, Liverpool, and Globe Insurance Co.F11
[COTTON, L.J. That dictum of Mellish, L.J., is against the view of James, L.J., in Rayner v. Preston.F12]
Gully, Q.C., and W. R. Kennedy, for the defendants. No doubt a contract of insurance is primâ facie a contract of indemnity, and the insurer is entitled to be subrogated into those rights of the assured which arise out of contracts entered into with respect to the preservation of the subject-matter of insurance: Darrell v. TibbitsF13 is a decision founded upon this principle, but it does not apply to the facts now before the Court. The contract for the sale of the house was not a contract with respect to its maintenance in good condition and to its preservation from destruction by fire. The present defendants were unpaid vendors at the time when the loss happened, and the plaintiff's company could have had no defence to an action upon the policy: Collingridge v. Royal Exchange Assurance CorporationF14; and it is immaterial that at the time of payment upon the policy the defendants' interest in the property would speedily cease: in Simpson v. Scottish Union Insurance Co.F15 it was laid down by Wood, V.C.: “I agree that a tenant from year to year, having insured, would have a right to say that the premises should be rebuilt for him to occupy, and that his insurable interest is not limited to the value of his tenancy from year to year.” Suppose that a tenant has contracted to buy a house at the landlord's option for a fixed price, and that the house is afterwards burned down; and suppose that the landlord having insured it, receives its value from the company: is the landlord bound to compel the tenant to purchase the house, and is the landlord bound to reimburse the insurance company out of the price received from the tenant? Suppose that the plaintiff's company had reinstated the house instead of paying the amount of the damage, could the cost of reinstating it be recovered back from the defendants after the completion of the purchase? It is the logical conclusion of the argument for the plaintiff that both these questions must be answered in the affirmative; but surely this is unreasonable. No doubt an insurer can take advantage of all contracts relating to the loss, and of all contracts which give a remedy upon the happening of the loss; but the contract to sell the defendants' house was not of this kind; it was wholly unconnected with the loss; it was independent of it, or at least collateral to it.
[BOWEN, L.J. Can any authority be adduced for the restriction upon an insurer's rights which is now contended for?]
No; but the argument for the plaintiff has never before been advanced. It is plain from the reasoning of the Law Lords in Simpson v. ThomsonF16, that an insurer is only subrogated to those rights which may be enforced against third persons in respect of the loss: in the present case the defendants, as vendors, had no rights as against the purchasers in respect of the loss; for a contract of sale is quite distinct from a contract of insurance: Edwards v. West.F17 A fire policy is not quite a contract of indemnity, and a distinction exists between fire insurances and marine insurances; but it has been held that even a marine policy is not a complete contract of indemnity: Aitchison v. Lohre.F18 The...
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