Salterio v. The City of London Fire Ins. Co.

KING J.-The condition relied upon by defendant as a defence to the action declares (inter alia) that if the assured shall assign, part with, or in any way encumber the policy or any interest therein, without the consent of the company indorsed on the policy, the policy shall be void. Prior to the loss the assured made a chattel mortgage to Messrs. Gault Bros. assigning and transferring all his stock in trade (the property covered by the insurance in question) and " also all policies of insurance on the said stock and premises." He held at the time several policies of insurance in one or more of which there was no condition against assigning or encumbering such policy or policies.

Mr. Harrington argued, upon the authority of Lazarus v. Commonwealth Ins. Co. that the assignment should be limited to such of the policies as contained no restraint upon assignment, upon the ground that it would be insensible for the mortgagor to destroy his security under the policy, as neither he nor the mortgagee could derive any advantage from it. He also contended that the assured could not be said to have assigned or encumbered the policy when the policy did not admit of such assignment or encumbrance being made effectual except upon a condition that was not performed.

But I conceive that what is meant by the condition is that the policy shall be voidable by the insurance company upon breach of the condition, and the Messrs. Gault had, by the assignment and encumbrance, the legal possibility of advantage through the chance of the company's consent being given. The encumbrance was effectual so far as Salterio was concerned, and might be entirely an effectual security by the company electing not to avoid the policy. Unless the clause of the policy operates to render voidable what but for it would be a valid assignment or encumbrance it is difficult to see what it can mean.

Here there was the transfer of the insured property by way of mortgage, and the transfer by way of mortgage of the assured's interest in the policy and the policy itself, and this seems to me to be an encumbrance of the policy or of an interest therein within the meaning of the condition.

The assigning or encumbering clause " also all policies of insurance on the said stock and premises," in its natural meaning embraces this policy, and there is nothing to show that the intent was otherwise; on the contrary the -attorneys of Messrs. Gault, the virtual plaintiffs, a few days after the loss wrote the following letter to the agent of the company, clearly implying that, in Messrs. Gault's view at least, this policy had been transferred under the chattel mortgage and requesting that consent be then given.

In Iay on Insurance (1), it is said that:- An assignment of a policy as collateral security avoids a policy which stipulates against an assignment in whole or of any interest in THE it under penalty of forfeiture.

In such case the words " or of any interest in it" FIRE have been held in the courts of the United States to O extend to the transfer of the policy by way of security. King J. The words of this policy go further and extend in terms to encumbrances.

There are the following general observations of the experienced writer just quoted with reference to the reason for the insertion of such clause:- Incumbrances are objectionable, and are usually inquired after ; for, as they increase, the interest of the owner of the property in its preservation diminishes * * * If the privilege of transferring the policy as collateral security for goods purchased or money borrowed tends to the increase of incumbrances the Company has a motive to prohibit it. That it does so tend is a matter of common experience.

McInnes. (1) 2 ed. sec. 380.