the assignment, the buyers now possess two policies of fire insurance under which they seek to collect. The Vogel case presents a virtually identical factual scenario. In Vogel, the seller and buyer of real property each purchased fire insurance on the property which was the subject of the purchase agreement. The buyer obtained a policy worth $ 9,000.00, and the seller, one worth $ 6,000.00. The house was damaged by fire prior to the conveyance, and the seller assigned his claim under the fire policy to the buyer. The damage attributable to the fire totalled $ 12,000.00. The Third Circuit decided that under Pennsylvania law the other insurance clause was inapplicable because the policies covered two distinct and separate insurable interests. The court cited the rule that other insurance clauses must cover the same interest to be applicable. Applying Pennsylvania law, the Vogel court upheld a lower court ruling which permitted the buyer to recover the full amount under each policy of fire insurance. Although the Third Circuit considered this result inconsistent with the principle of limiting recovery on a loss to indemnification, it believed that Pennsylvania legal precedent compelled this outcome.
However, in light of the ruling by the Pennsylvania Supreme Court in INA v. Alberstadt, 383 Pa. 556, 119 A.2d 83 (1956), the double recovery permitted by the Vogel court could not stand today. In Alberstadt, the defendant Alberstadt, owner of the property, obtained fire insurance coverage for a parcel of real property that was subsequently sold at a sheriff's sale to recoup unpaid property taxes. The successful bidder at the sale also took out fire insurance on the property. When a fire occurred damaging the property, both Alberstadt and the purchaser demanded recovery under their respective policies. The lower court awarded judgments which in aggregate exceeded the loss caused by the fire. The insurance companies appealed, and expressed their willingness to pay pro rata shares up to the amount of the loss.
On appeal, the Pennsylvania Supreme Court first determined that although Alberstadt as the holder of legal title was entitled to collect proceeds under her own policy of insurance, she held all proceeds in trust for the subsequent purchaser. In addition, the court held that the purchaser was not entitled to recover twice; he could not recover from his insurer as well as the original owner's insurer and thus gain a windfall. Stated the court, "Since the fire insurance is only a contract of indemnity and its object is not to permit a gain by the insured but only to compensate him for a loss, it is obvious that he cannot recover insurance in an amount greater than the loss which he sustained." 383 Pa. at 561, 119 A.2d at 86. Recovery by the buyer, therefore, was limited to the total loss sustained as a result of the fire.
The court then considered which insurer should pay the loss and concluded that the insurers should each contribute a pro rata share. In reaching this conclusion the court recognized the validity of separate policies covering separate interests but limited the buyer to a recovery which did not exceed the limits of his loss. Thus, instead of a double recovery in excess of the loss suffered, the insured was limited to a single recovery prorated between the insurers.
The court in Alberstadt was merely striving to achieve a just result that required insurers within the limits of their policies to share the payment of the loss, thereby removing the possibility of the insured realizing a windfall from the fire. Accord, Smith v. Prudential Property and Casualty Insurance Co., 508 F. Supp. 452, 454 (W.D. Pa. 1980). The court's decision in favor of proration conforms to Pennsylvania public policy. This policy is aptly expressed in the much earlier case, Thurston v. Koch, 4 U.S. (4 Dall.) 348, 23 F. Cas. 1183, 1185, 1 L. Ed. 862 (C.C.D. Pa. 1800) (quoting Godin v. The London Assurance Co., 97 Eng Rep 419, 420 (K.B. 1758) (Mansfield, L.J.)):
"Before the introduction of wagering policies, it was, upon principles of convenience, very wisely established, 'that a man should not recover more than he had lost.' Insurance was considered as an indemnity only, in case of a loss; and therefore, the satisfaction ought not to exceed the loss. This rule was calculated to prevent fraud; lest the temptation of gain should occasion unfair and wilful losses. If the insured is to receive but one satisfaction, natural justice says that several insurers shall all of them contribute pro rata, to satisfy that loss against which they have all insured." (Emphasis supplied.)