## Facts

- Ohio Farmers Insurance Co. issued a three-year fire policy for $7,500 covering a New York City brick building; the policy was later endorsed to reflect a change in ownership.
- Pasquale and Giacomo Savarese held a mortgage on the premises; $6,500 plus interest remained unpaid at the time of loss.
- The policy included a New York standard mortgagee clause making any covered loss payable to the Savareses as mortgagees and providing that, as to the mortgagees’ interest, coverage would not be invalidated by any act or neglect of the owner.
- A fire occurred during the policy period, causing stipulated damage of $4,230.
- Contractors repaired the building and restored it to its pre-fire condition; the owner assigned his policy interest to the contractors as payment.
- The insurer was prepared to pay the contractors $1,178.64 under the policy’s pro rata (coinsurance) provision, and judgment for that amount was entered for them.
- The mortgagees sought the full $4,230 under the standard mortgagee clause, arguing that the owner’s repairs could not defeat their claim.

## Issues

1. Whether the owner’s post-fire repair and restoration of the premises bars the mortgagees’ recovery under a standard mortgagee clause because the mortgage security was ultimately unimpaired.
2. Whether the mortgagees’ recovery under the standard mortgagee clause is subject to policy limitations such as a coinsurance (pro rata) clause.

## Decision

- The Court of Appeals reversed the judgment for defendants and directed judgment for the mortgagees.
- The court held that the owner’s repairs after the fire did not prevent the mortgagees from recovering for the fire loss under the standard mortgagee clause.
- The court treated the mortgagees’ protection as a separate contract of insurance that vested at the time of the fire.
- The mortgagees’ recovery remained governed by applicable policy provisions, including limitations such as coinsurance/pro rata terms.
- Three judges dissented.

## Legal Principles

- A standard mortgagee clause creates a separate insurance contract for the mortgagee’s interest, functionally equivalent to a separate policy issued to the mortgagee.
- The mortgagee’s right to payment accrues at the time of the covered loss and is not defeated by subsequent acts of the owner, including repairing or restoring the property.
- Insurance against fire compensates for loss caused by the insured peril when it occurs; later restoration of the collateral does not retroactively extinguish a vested contractual claim.
- Although the mortgagee clause protects the mortgagee from invalidation based on the owner’s conduct, the mortgagee’s coverage remains subject to policy terms that define and limit the insurer’s liability, including coinsurance/pro rata provisions.

## Conclusion

The court held that mortgagees protected by a standard mortgagee clause may recover for an insured fire loss even if the owner later restores the premises, because the mortgagee’s separate contractual right vests at the time of loss; however, the mortgagee’s recovery remains subject to the policy’s limiting provisions such as coinsurance.


Savarese v. Ohio Farmers Ins. Co., 260 N.Y. 45, 182 N.E. 665 (N.Y. 1932)