Story Case

Mr. Julius Harden, owner of a coast-wise steamship line gave to his youngest daughter for her birthday present, a policy of insurance on the thousand-ton freighter "Knave" plying between Portland, Maine, and Los Angeles, California. The insurance policy insured Mr. Harden's interest in the boat, but provided that, in the event of his loss, the proceeds were to be paid to "Elizabeth Harden, youngest daughter of Julius Harden." Several months passed, and Mr. Harden, quite forgetting the policy of insurance, accepted an offer from the California Fruit Transportation Company of $600,000 for the line of freighters of which he was owner. A day or two after this transaction, the freighter "Knave" was sunk, in consequence of an explosion of a cargo of benzine. Elizabeth Harden brought suit on the insurance policy given her by her father. Will she recover?

Ruling Court Case. Grosvenor Vs. Atlantic Fire Insurance Company, Volume 17 New York Reports, Page 391

McCarthy was the owner of a dwelling house which he mortgaged to Grosvenor. The insurance company herein, insured McCarthy against loss by fire to the amount of $7,000, and agreed to pay the loss, if any, to Grosvenor - mortgagee. The policy contained a condition that, in case of any transfer or termination of the interest of McCarthy, the policy should be void. McCarthy, however, without the consent of the company, did sell and convey the property to one Bost-wick. About one month later, the building was burned. Grosvenor then brought this action to recover the loss sustained.

The company contended that Grosvenor was only a beneficiary and entitled to recover, only in case the one who insured for his benefit might have recovered. McCarthy, having broken a condition, could not have recovered; therefore, urged the company, Grosvenor was not entitled to recover.

Mr. Justice Harris said: "The undertaking to pay the plaintiff was an undertaking collateral to and dependent upon the principal undertaking to insure the mortgagor. The effect of it was, that the defendants agreed that whenever any money should become due to the mortgagor upon the contract of insurance, they would, instead of paying it to the mortgagor himself, pay it to the plaintiff. The mortgagor must sustain a loss for which the insurers were liable, before the party appointed to receive the money would have a right to claim it. It is the damage sustained by the party insured, and not by the party appointed to receive payment, that is recoverable from the insurers. The insurance being upon the interest of the mortgagor, and he having parted with that interest before the fire, no loss was sustained by him, and, of course, none was recoverable by his assignee or appointee." Judgment was given for the company.

Ruling Law. Story Case Answer

Where a policy is made payable to a beneficiary, and the company consents to the arrangement, the beneficiary acquires a vested interest in the policy. But it must be noted that the insurance is still upon the interest of the insured and not upon the interest of the beneficiary; therefore, unless the insured has suffered some loss, the beneficiary has no claim to damage; and if the insured has conducted any course which would forfeit the policy as to him, it will likewise forfeit the policy as to the beneficiary.

Mr. Julius Harden had, of course, released his entire interest in the ship which he insured for the benefit of his daughter. Her right was secondary and derivative, and the one from whom she derived her right having precluded himself from recovery by sale of the property insured, her rights vanished with his.