Paramount Fire Insurance Company v. Aetna Casualty and Surety Company
The heirs of Mrs. Cameron agreed to sell the purchasers some land and gave them the right to occupy and improve the premises from the signing of the contract. The purchasers exercised this right and did occupy the premises.
Three months later, the sellers then bought insurance from the petitioner to protect the improvements on the land up to $15,000. This was only payable to sellers, and a clause extending protection to the purchasers was rejected.
The purchasers also bought an $18,000 fire insurance for the improvements from the respondent.
The next year, 10 days before closing, a fire occurred on the premises. The parties still closed the next month, and the sellers assigned all their rights and claims under their policy to to the purchasers.
The purchasers filed claims for $14,000 of property loss against both insurance companies. The companies each paid a pro rata share of this, according to their policy limits, and then sued each other.
The trial court granted Paramount, sellers' insurance company, summary judgment against Aetna, purchasers' insurance company.
The Court of Civil Appeals reversed and pro rated the loss between the companies again.
Who bears the loss when two companies both insure property between sale and closing?
Because an insurance contract is a contract of indemnity, he is only entitled to recover to the extent of his loss, no further. If he did not suffer a loss, he cannot recover.
Where the purchaser will bear a loss under a pending sales contract, the seller's insurance policies on the property will constitute a trust fund for the benefit of the purchaser.
The sellers still got the full payment for the property even though there was a fire. They did not actually bear a pecuniary loss from the fire.
The purchasers did suffer a loss and would normally be entitled to recover from the sellers' policy as a trust for them. However, since they had their own insurance policy which fully covered the damage, there is no reason for an exception to the sellers' policy which is basically an indemnity contract.
Purchasers' did not just accidentally bear the risk. They got their own insurance. The sellers did not intend their policy to protect the purchasers; they specifically rejected such a provision. It says it only covers "the interest of the insured." The sellers bore no loss and had no right to assign their policy to the purchasers.
The purchasers' insurance company should bear the loss. Reversed.
Although the sellers ended up not suffering a loss, they did have $12,675 of the purchase price still unpaid at the time of the fire. Sales contracts can last years to be paid off. Insurance companies cannot be expected to wait years after the loss for the payments to finish to figure out who ends up liable for it. The purchasers should have been able to collect on this interest assigned to them. The judgment of the Court of Civil Appeals should be affirmed.