Easton v. Washington County Insurance Company, Appellant.
Supreme Court of Pennsylvania
October 7, 1957
reargument refused January 22, 1958.
391 Pa. 28 | 137 A.2d 332
Finally, if there were any doubt as to the meaning of the language or if it might be susceptible to the interpretation placed upon it by appellee, the general rule of construction that an ambiguous lease must be construed most strongly against the landlord and in favor of the tenant would be peculiarly applicable here inasmuch as the lease was prepared by the lessor appellee.
The order is reversed and the record is remanded to the court below for further proceedings in accordance with this opinion; costs to be paid by appellee.
George Y. Meyer, with him H. Gilmore Schmidt and William W. Matson, for appellants.
George I. Bloom, with him Walter W. Riehl, and Bloom, Bloom & Yard, for appellees.
OPINION BY MR. JUSTICE COHEN, October 7, 1957:
Plaintiffs were the owners of a certain property in Washington County. On October 1, 1951, there stood on this property a two-story concrete block and frame building with a basement and sub-basement. Because of
In the open yards was a small building commonly called a shed, open on all sides and roofed with tar paper, used to store gutters and some lumber.
Prior to October 1, 1951, the property was protected under insurance policies “[o]n the two story concrete block building . . . occupied for living apartments, offices, and warehouse for lumber and builders’ supplies. . .
“And on . . . lumber in open yard adjacent to the above described warehouse.
“Privilege granted to finish and complete.” (Emphasis supplied).
On October 1, 1951, the original policies to the value of $100,000 were cancelled at the request of the assured because the buildings carried an excessively high rate; and insurance in the amount of $60,000 (divided equally among six companies) was placed only “on stock of lumber and builders’ supplies in open yards and sheds at the rear of assured‘s warehouse at Washington County, Pa.” (emphasis supplied). After the new policies totaling $60,000 were issued, plaintiffs constructed additional sheds in the open yards and stored lumber
A fire completely destroyed plaintiffs’ building, including the lumber and building supplies which were stored therein, on March 15, 1954. The lumber in the open yards and at the railroad siding, however, was not damaged by the fire.
Plaintiffs sought to recover on the insurance for their losses, maintaining that the partitioned basement and rooms in the sub-basement were “sheds” within the meaning of the policies and that the contents—lumber and builders’ supplies—were thus insured. All the companies refused their claim. Plaintiffs on March 11, 1955, instituted separate suits, (consolidated for trial), against the several insurance companies in the Court of Common Pleas of Washington County. The cases were tried on the following theories: (1) that the word “sheds” is broad enough to encompass within its meaning the basement structures at the bottom of the concrete block and frame building; (2) that though the contracts of insurance are apparently clear, when an attempt is made to apply their terms to the existing situation an ambiguity arises in that the word “sheds” could apply equally to the basement structures or to the small building in the open yard or to both; that a latent ambiguity having thus developed, evidence is admissible to denote the exact reference intended by the parties to be attributed to the word “sheds“; (3) that through fraud, accident or mistake coverage of the materials in the basements was not included in the insurance contracts and that, therefore, the contracts should be reformed to include such coverage.
The trial judge rejected the plaintiffs’ first theory—that the basement structures were sheds. However, he determined that the word “sheds” in the insurance policies was latently ambiguous. He therefore admitted
Additionally, the trial judge admitted evidence to determine whether the parties, pursuant to an oral agreement made with the defendants’ agent, intended to insure the basement structures but failed to include their understanding in the policies because of fraud, accident or mistake. This issue was also submitted to the jury.
The jury returned a verdict in favor of the plaintiffs, and the defendants moved for judgment n.o.v. and for a new trial. From the refusal of their motions by the court en banc, (the trial judge dissenting), and the entry of judgment upon the verdict, the defendants have brought these appeals.
The plaintiffs’ contention that the basement storage areas are “sheds” cannot be sustained. Simple words of common usage in a policy of insurance will be construed in their natural, plain and ordinary sense. Blue Anchor Overall Co. v. Pennsylvania Lumbermens Mutual Ins. Co., 385 Pa. 394, 397, 123 A. 2d 413 (1956). It has not been suggested that the word “sheds” is a word of art or that it is not a simple word of common usage. We therefore construe it in its natural, plain and ordinary sense. The trial judge in his charge to the jury, quoting from numerous standard dictionaries,1 stated: “the word ‘shed‘, is defined as ‘a slight structure built for shelter or storage; . . . a lean-to, or separate building open in front, an outbuilding, a hut, as a wagon shed.’ . . . ‘A small building slightly constructed and of simple form, usually one story high, and often
The meaning of the word “sheds” is plain, and there has been no suggestion that it was used in a special or technical sense. While the facts surrounding the making of a contract are admissible in evidence to help explain the meaning of language used in a contract,2 if the meaning is plain3 and the circumstances do not show that the language was used in a special or technical sense,4 no such evidence can be submitted to a jury. See Restatement, Contracts §§230, 235(a), (b), (d), and comments (1932); 9 Wigmore, Evidence §§2460-
The second theory of the plaintiffs is that the insurance contracts contain a latent ambiguity arising from the fact that while the original policies issued in 1951 used the plural “sheds” there, in fact, existed at that time only one shed in the open yard. From this circumstance the plaintiffs contend that the court below properly admitted evidence showing whether the word “sheds” was intended by the parties to cover the basement store rooms and correctly submitted this issue to the jury.
We are unable to agree. A latent ambiguity arises from extraneous or collateral facts which make the meaning of a written instrument uncertain although the language thereof be clear and unambiguous. Metzger‘s Estate, 222 Pa. 276, 71 Atl. 96 (1908). The usual instance of a latent ambiguity is one in which a writing refers to a particular person or a thing and is thus apparently clear on its face, but upon application to external objects is found to fit two or more of them equally. See Lycoming Mutual Insurance Co. v. Sailer, 67 Pa. 108 (1870) (insurance policy covered a “hay house“; there were two “hay houses“); Koplin v. Franklin Fire Insurance Co., 158 Pa. Super. 301, 44 A. 2d 877 (1945) (plaintiff‘s two chicken houses were insured for different amounts; which was chicken house #1 and which was #2 within the designation of the policy?) See also 9 Wigmore, op. cit. supra, §2472.
Whether evidence of extrinsic circumstances is sufficient to create a latent ambiguity in a contract is a matter of law for the court. Only after the court is satisfied that a latent ambiguity exists is the question of what the parties intended by language used in the
The mere fact that the plural “sheds” was used in the present policies when only one such structure existed in 1951 does not create an ambiguity. The effect of the policies is simply to insure the one existing shed and, further, to cover any other sheds which might be erected during the life of the policies to a total value of $60,000. If a policy of insurance were drawn to cover “horses” and the insured had but one horse at the time, certainly no such ambiguity would arise as would permit testimony that the policy was meant to cover the insured‘s cow as well. Simply because the plural “sheds” was used when only one shed existed is not a sufficient reason for permitting evidence to be introduced in order to show that a structure which is clearly not a shed is a shed within the meaning of the contract on the theory that latent ambiguity exists.
Since the court should have, in the first instance, determined that there was no latent ambiguity in the contracts, it follows that the admission of evidence on the question whether the parties used the word “sheds” to include the basement storeroom, and the submission of this issue to the jury, was error.
The final theory of the plaintiffs is that they are entitled because of fraud, accident or mistake to have the policy reformed in order to carry out the full intent and agreement of the parties. They would have the coverage of the policy changed to read as follows: “On Stock of lumber and builders supplies in open yards and in a shed in the open yards; and in a shed or sheds consisting of (a) stalls in the sub-basement
In support of this position Samuel Easton testified that the defendants’ authorized agent agreed that the fire insurance policies when issued were to cover the lumber and builders’ supplies which the plaintiffs had stored in the basement and sub-basement of their build-ing with the understanding and agreement that they would construct a wall partitioning off the rear portion of the basement warehouse in such a manner that there would be no direct communication between the basement storage areas and any other part of the building. In addition, Easton testified that the agent agreed that after the construction of the partition the basement storage rooms would be classified as “sheds“.
In order to obtain the reformation of a contract in equity, or a variance of the terms of a contract at law, the moving party is required to show by clear, precise and indubitable evidence either fraud or mutual mistake. Brandolini v. Grand Lodge of Pennsylvania, 358 Pa. 303, 305, 56 A. 2d 662 (1948); Broida v. Travelers Insurance Co., 316 Pa. 444, 447, 175 Atl. 492 (1934); Gianni v. Russell & Co., 281 Pa. 320, 325, 126 Atl. 791 (1924). The meaning of this requirement is that [plaintiffs‘] “witnesses must be found to be credible, that the facts to which they testify are distinctly remembered and the details thereof narrated exactly and in due order, and that their testimony is so clear, direct, weighty and convincing as to enable the jury to come to a clear conviction, without hesitancy, of the truth of the precise facts in issue.” Broida v. Travelers Insurance Co., supra, 316 Pa. at 448. Furthermore, the
Reviewing the evidence presented in the case before us, we find that the plaintiffs’ evidence does not fulfill the standard of proof required to warrant submission of their claim to the jury.
Samuel Easton was the only witness to testify to the alleged fraud or mistake.5 It is undenied that he knew that the building and its contents had been rated as a high risk by the insurance companies because of lack of fire protection. The evidence shows that the plaintiffs had argued strenuously with the insurance representatives for a lower rate without success. Under these circumstances it seems less than credible that the plaintiffs, by the addition of a wall separating the storage areas from the remainder of the building, thought that they could obtain on them the same lower fire insurance rate which applied to the materials stored in the open yards and in the open shed for which adequate fire protection was available.6
“November 5, 1951
Easton Lumber & Builders Supply Co.
R. D. #2
Canonsburg, Pa.Attention: Mrs. Samuel Easton
Dear Mrs. Easton:
Confirming our phone conversation regarding your account we will try to explain it as follows:
On November 2, 1950 a policy was written on the new building and contents under Washington County Policy #37-654-0522. An additional $10,000.00 was added December 8, 1950 under Pennsylvania Millers Policy #396863. On February 3, 1951, $15,000.00 additional was added under Berkshire Policy #649973. This made a total amount of $40,000.00 and the bill was sent to you February 9 in the amount of $484.70. It was paid in full by your office March 1, 1951.
The policy written in the Washington County effective November 2 was reduced from $15,000.00 to $10,000.00 on March 2, 1951. This was because the company did not want to carry more than $10,000.00 after they made an inspection. This policy was then reduced to $10,000.00 and a policy was written in the Millers Mutual #B 46745 and was billed to you March 5, 1951, in the amount of $30.33. This was paid in full by your office May 9, 1951.
March 19, 1951 we were out to see Mr. Easton and he asked us to increase the insurance to $100,000.00 making $50,000.00 on the building and $50,000.00 on contents including the lumber in the open yards. We forwarded binders to your office subject to the Middle Department making rates on same. We had considerable difficulty with the Middle Department in getting them to rate your new building. When they finally did rate it, it was very high. We then fought with them for a long time in attempts to get the rates reduced, but were unsuccessful.
We then discussed the matter with Mr. Easton on October 1 and he requested us to eliminate the coverage entirely on the new building and cover $60,000.00 on all stock outside of the building.
The judgments of the Court of Common Pleas of Washington County are reversed and here entered in favor of the several defendants.
This bill was sent to you October 12, 1951, premium being $319.60. At the same time we sent you a credit for $175.67 which was the total return premium on the original bill of $484.70, paid by your office March 1, 1951.
The binder charges from March 19 to October 1 for the $60,000.00 netted $322.01. There was never a bill sent to you on the binders until Oct. 15, 1951.
We hope we have made ourselves clear on the matter of these bills and if there is any further question, do not hesitate to call us.
Yours very truly,
Mutual Insurance Agency
KMY, Jr.:dg” (Emphasis supplied)
Notes
DISSENTING OPINION BY MR. JUSTICE BELL:
I differ with the majority, not on the law, but on its application to the facts in this case.
Plaintiffs brought six separate suits to recover on six fire insurance policies dated October 1, 1953, each of which covered “stock of lumber and builder‘s supplies in open yards and sheds* at rear of the assured‘s warehouse and along railroad siding . . . .” The suits involved exactly the same question and were tried to-
The policies dated October 1, 1953 were renewal policies—the original policies, which were identical, were dated October 1, 1951 and ran for a period of one year. The parties based their arguments and the Court has based its decision upon the intention of the parties as disclosed in the original policies. The most important question that arises is whether or not the policies covered the lumber and builder‘s supplies in the open sub-basement rooms or stalls of the warehouse; in other words, whether these open rooms or stalls in the sub-basement were “sheds” within the meaning of the insurance policies.
The insurance policies on their face appear clear and unambiguous. The word “sheds” ordinarily would not include rooms or stalls in the sub-basement of a warehouse. Nevertheless, plaintiffs introduced a wide variety of parol evidence in an attempt to prove that the word “sheds” was intended to include the aforesaid rooms or stalls. This oral evidence was introduced under two theories, (1) that a latent ambiguity existed in the policies, and (2) that the policies should be reformed after the fire to include the basement and the rooms or stalls in the sub-basement because of fraud, accident or mistake.
Parol evidence is admissible to explain, clarify, interpret and resolve a latent ambiguity,* i.e., an ambigu-
An insurance policy will be construed most strongly against the insurer who prepared it: Blue Anchor Overall Co. v. Pennsylvania Lumberman‘s Mutual Ins. Co., 385 Pa. 394, 123 A. 2d 413; Beley v. Pa. Mutual Life Ins. Co., 373 Pa. 231, 95 A. 2d 202; MacDonald v. Metropolitan Life Ins. Co., 304 Pa. 213, 155 A. 491; Howley v. Scranton Life Ins. Co., 357 Pa. 243, 53 A. 2d 613; West v. McMillan, 301 Pa. 344, 152 A. 104.
“““The cardinal rule in the interpretation of contracts is to ascertain the intention of the parties and to give effect to that intention if it can be done consistently with legal principles.” [citing cases] “Contracts must receive a reasonable interpretation, according to the intention of the parties . . . if that intention can be ascertained from their language.“” Brown v. Raub, 357 Pa. 271, 287, 54 A. 2d 35.†
With these principles in mind, we shall briefly review the evidence presented. In order to show that the word “sheds” was not used in or intended to have its ordinary meaning, plaintiffs proved that there was only one shed in the open yard namely, a fir gutter shed, at the time the first insurance policies were executed on October 1, 1951, and during the entire year when the policies were in effect. From this fact, plaintiffs contend that the word “sheds” being in the plural, necessarily must have been intended to include the four separate open sub-basement rooms or stalls.
Plaintiffs, to further support their construction, proved that at the time the fire insurance policies were issued in 1951 in the sum of $60,000, (a) the lumber stored at the railroad siding had a fair market value of $15,000, (b) the lumber and materials in the gutter shed was of little value and (c) the lumber stored in the open sub-basement rooms or stalls had a fair market value of $45,000—a total of $60,000. Although plaintiffs are suing on policies taken out in October 1953 when additional sheds had been erected in the open yards (commencing in March 1952), they contend that they would not have taken out $60,000 worth of fire insurance in 1951 to cover $15,000. worth of lumber at the railroad siding and in the fir gutter shed unless they and Young, who was the authorized agent of the insurance companies and who saw the premises, intended the insurance in those policies to cover the
Whether the aforesaid parol evidence of extrinsic facts and circumstances was legally sufficient to create a latent ambiguity was, in the first instance, a matter of law for the Court. If the Court decided that the evidence was legally sufficient to create a latent ambiguity, then the question of what the parties intended by the language used in the contract—taking into consideration the extrinsic facts and circumstances—was a question to be determined by the jury. Cf. Titusville Trust Co. v. Johnson, 375 Pa. 493, 100 A. 2d 93; Gerfin v. Colonial Smelting and Refining Co., Inc., 374 Pa. 66, 97 A. 2d 71; Wagner v. Somerset County Memorial Park, 372 Pa. 338, 93 A. 2d 440; Waldman v. Shoemaker, 367 Pa. 587, 80 A. 2d 776; Corn v. Wilson, 365 Pa. 355, 75 A. 2d 530; Stafford v. Reed, 363 Pa. 405, 70 A. 2d 345; Brandolini v. Grand Lodge of Pa., 358 Pa. 303, 56 A. 2d 662; Aliquippa National Bank v. Harvey, 340 Pa. 223, 16 A. 2d 409. See also University City, Mo. v. Home Fire and Marine Insurance Co., 114 F. 2d 288; East and West Insurance Co. of New Haven, Conn. v. Fidel, 49 F. 2d 35; Queen Insurance Co. of America v. Meyer Milling Co., 43 F. 2d 885.
Considering the unusual extrinsic facts which are present in this case and all the surrounding circumstances, including the unusual open rooms or stalls in which the lumber was stored, I believe (1) that there was a latent ambiguity in these insurance policies, (2) that parol evidence was admissible to clarify, interpret
DISSENTING OPINION BY MR. JUSTICE MUSMANNO:
I agree with everything said by Justice BELL in his Dissenting Opinion and would add an additional observation or two in support of our conclusion that the verdict of the jury in this case should be approved and the judgment affirmed.
When the plaintiff, Samuel Easton, and the representative of the involved insurance companies, Everett Young, discussed the matter of insurance on Easton‘s lumber, Young quoted the insurance rate of $3.22 on the lumber stored inside Easton‘s warehouse and $.99 on the lumber in the yard. Easton indicated that if he could not be given the lower rate on the lumber stored in the basement and sub-basement of his building, he would not purchase insurance. At the time of this discussion Easton had lumber stacked in three places: a quantity valued at $45,000 in basement and sub-basement stalls in his building; another quantity at the railroad siding worth $15,000; and a small, as well as inferior grade, of lumber in a so-called gutter rack or shed by the creek worth not more than $300. Obviously, the most momentous of these items was the $45,000 stock in basement and sub-basement.
When Easton declined to pay the $3.22 rate on the $45,000 stock, Young offered him the outdoor rate provided he would isolate the lumber stalls in his building from the rest of the building so that he could classify their contents as “shed” lumber. Easton accepted this proposition and accordingly built an expensive and for-
Easton testified: “Q. Well then you understood, from the words that you say he used, if you put that wall up, then your rate in this separated part of the building, as you put it, would come down from what was the rate on the building of $3.22, down to about 50 cents? A. It would come down to the same rate he had given me on the open sheds and yard in Thompsonville. Q. And you said that was fifty cents? A. Yes, with my dividends. . . . Q. The word shed then was going to mean a part of your building? A. That‘s right, the rear of it. Q. It would still be part of the building? A. It was stalls and sheds, correct—the rear of it.*”
Young denied this conversation but the jury gave credence to Easton‘s testimony.
If the arrangement described by Easton did not take place, the following questions inevitably present themselves:
- Why would Easton have erected the expensive wall which blocked off all communication between the forward and rear part of his building?
- Why would he have taken out $60,000 worth of insurance on the lumber at the railroad siding and the lumber in the gutter rack, the total value of which was only $15,300?
- If the stalls in the warehouse were not to be regarded as sheds, why would the insurance policies employ the plural word “sheds“, when at the time only
- What happens to the testimony, apparently believed by the jury, given by Robert Graham, who said: “There was a sub-cellar down underneath there. What we called the sheds,—we called them sheds.”
Speaking to the subject of sheds, the Majority Opinion says: “The mere fact that the plural ‘sheds’ was used in the present policies when only one such structure existed in 1951 does not create an ambiguity.... If a policy of insurance were drawn to cover ‘horses’ and the insured had but one horse at the time, certainly no such ambiguity would arise as would permit testimony that the policy was meant to cover the insured‘s cow as well.”
I doubt that the horse-and-cow illustration is an apt one. Webster defines a horse as a “large, solid-hoofed, herbivorous mammal domesticated by man since a prehistoric period and used as a beast of burden or for riding.” Webster defines a cow as “the mature female of wild or domestic cattle of the genus Bos (ruminant quadrupeds).” There are many differences between a horse and a cow which we should not use valuable paper to delineate, outline, enumerate and describe. Certainly there are not that many differences between a shed as described by the Majority and the basement stalls described by the plaintiffs’ witnesses. Cows and horses have no similarity except that they are both quadrupeds, they have no common feature except that they are equally exploited by man, they have no social resemblance to each other except that they both feel at home in a stall or shed. There is, however, a vast area of similarity between the three-sided enclosures housing the lumber in Easton‘s warehouse and the gutter rack enclosure (called a shed) housing lumber in his yard.
But who says that that is the “meaning of the policies“? The Majority Opinion writer. But how does he know that that is what the contracting parties had in mind? How can he derive that meaning except from extraneous evidence? And if he can reason “shed” from the specific word “sheds,” then he must consider the circumstances surrounding the writing of the policies.
And if the Majority admits that surrounding circumstances must be analyzed and evaluated, then the door has been opened for interpretation of the contract and parole evidence must be considered in arriving at the intention of the parties.
Taking up again the topic of a plural subject matter, let me offer an illustration. If a man has one natural child and one stepchild and takes out insurance on two children, the obvious conclusion would be that he meant to insure the lives of both the natural child and the stepchild. It could not be argued by the insurance company that when the word “children” was used, it was intended to refer only to the natural child and such other natural children as might be procreated in
There is another question which is not answered by the Majority Opinion. If Easton intended to insure his lumber, and of course he did, why would he restrict the coverage to the least valuable part of his stock—that which lay exposed to the elements in the yard,—and ignore the treasure in the warehouse stalls? Again, unless we ascribe to Easton a subnormal intelligence which is not evidenced by anything in the record, why would he pay premiums on $60,000 worth of insurance to cover only $15,000 worth of lumber?
These circumstances and many others covered in the 450 printed pages of testimony give added substance to Brother BELL‘S conclusions that (1) there was a latent ambiguity in the policies, (2) parol evidence was admissible to clarify, interpret and resolve the ambiguity, and (3) the construction of the insurance policies in the light of all the evidence and under proper instruction from the Court was a question of fact to be determined by the jury.