228 F. 833 | 2d Cir. | 1915
Lead Opinion
This action is brought to recover under a contract or policy of insurance. The complaint alleges that the Duluth Dog Company, hereinafter referred to as the insured, applied to the El Dia Insurance Company, hereinafter referred to as defendant, for insurance against loss or damage by fire upon certain of its properly consisting of lumber and timber products located in the state of Minnesota; that on April 28, 1913, the defendant insured the said property for the term of one year from said April 28, 1913, at noon to April 28, 1914, at noon, in the sutn of $15,000; that pursuant to this agreement the defendant issued its policy on May 10, 1913; that on April 29, 1913, a lire occurred which damaged the insured’s property to the extent of $33,383.04; that thereafter the defendant, through its adjuster, adjusted the loss and fixed the amount at $33,183.04; that the proportionate share of the loss chargeable to the defendants under the policy was $11,483.33.
- The answer admits that a contract of insurance was entered into on April 28, 1913, and that defendant agreed to issue a policy expressing the terms and conditions agreed upon in the contract of April 28th. It admits that it issued its policy on May 10, 1913. It admits that it insured the property to an amount not exceeding $15,000, and that it designated and appointed an adjuster for the purpose of adjusting the loss. That the fire occurred is not denied. It alleges that the insured misrepresented to its adjuster the amount and, value of the property with the intent to deceive and defraud it and create a liability on the part of the defendant greater than was warranted by the facts. It also alleges that its contract of insurance of April 28th was made upon the following terms and conditions: (1) That the maximum liability of the defendant during the term of the contract of insurance should not exceed $15,000. (2) That the defendant’s liability for loss resulting fn>m any one fire should not exceed 30 per cent, of such maximum liability. (3) That the said insurance should be subject in case of loss to what is commonly known as the 80 per cent, coinsurance clause. The policy as issued does not contain any coinsurance clause. It provides insurance to an amount not exceeding $15,000. It does not contain any clause limiting the defendant’s liability for loss so that it should not exceed 30 per cent, of the maximum liability, thus increasing the defendant’s apparent maximum liability by reason of one fire from $4,500 to $15,000, The answer also avers that by reason of fraud and deceit practiced upon defendant the contract of insurance entered into on April 28, 1913, has become and is void.
At the trial the counsel for defendant undertook to show that the policy as issued on May 10th did not conform to the contract of insurance as agreed upon on April 28th. This the trial judge refused to allow', and his refusal is assigned as error; and this alleged error we shall first consider.
The historical sequence of events is this:
On April 21, 1913, the Duluth brokers, acting for the insured, telegraphed the agent of the defendant in New York and asked the latter to place $50,000 insurance (a floater policy) on behalf of the Duluth Dog Company and the Bradley Timber & Railway Supply Company on their
“Message twenty-first received forward immediately copy of forms to be used showing limit by reason any one fire also coinsurance conditions.”
The same day the broker at New York addressed a letter to the Minnesota brokers which reads as follows:
“Replying to your message of April 21st, and confirming our reply of even date, would state that it is impossible for us to advise definitely whether we can handle this proposition or not until we have before us a copy of the form. The company will require a coinsurance clause equal to at least 90 per cent. They will also require a limit by reason of any one fire. As soon as we have full information before us, we will promptly advise you.”
On the same day the brokers for the insured telegraphed a night letter to the defendant’s agent in New York which reads:
“Limit any one fire thirty per‘cent, of face of policy will use eighty per cent, clause as soon as the assured are able to check up value of their property sending forms by mail to-day.”
On April 23d, the insured’s brokers wrote and mailed a long letter to the defendant’s agent in which the telegram of April 21st was confirmed. It said:
“We hope you may be able to cover this order or a part of it at the rate indicated, gross rate of S per cent., and as soon as the owners are able to arrive at the exact value of their property they will use the 80 per cent, coinsurance clause.”
On April 28th the defendant’s agent telegraphed:
“Binding fifteen thousand each lumber Bradley, Duluth Log. Send forms.”
On April 29th the fire took place at about 4 p. m. and the president of the Duluth Log Company was informed of tire fact by telegraph about 9:30 p. m. of the same day. Prior to the fire he had been informed of the telegram of April 28th. He did not inform his brokers of the fact of the fire. On April 29th the insured’s brokers wrote the defendant’s agent a letter as follows:
“Following your telegram of the 28th instant in which you state you have bound $15,000 under each schedule, the Duluth Log Company and the Bradley Timber & Railway Company, at a rate of S per cent., we are inclosing you herewith forms, and trust you will let policies come forward as soon as possible. If you succeed in placing any additional, kindly wire us.”
The letter was written without knowledge of the fire, and perhaps before the fire had occurred, as the fire broke *out late in the afternoon of the same day. It is certain the letter did not reach the defendant’s broker until after the loss had been incurred. The record does not disclose what the “forms” were which were forwarded. They were not so far as the record discloses put in evidence.
The next day, April 30th, the agent of the insured telegraphed the agent of the defendant: “Do not use forms sent you yesterday new forms sent you to-day.” At that time the insured’s broker was still without knowledge of the fire. We do not find these “new forms” in the record. But on May 1st the insured’s agent wrote the defendant’s agent saying the “amended forms were sent yesterday,” adding:
*837 “The forms should have stated the gross amount liable in any one fire, instead of the percentage. That is the only change.”
The reason the broker gave at the trial for this change of “forms” was as follows:
“Because in my conversation with Mr. Bradley (the officer of the Duluth Log Company who applied for the insurance) there was nothing said about percentages. In going over the placing of the order with me, the question arose as to what the liability should be under the insurance, taking into account that he was getting §50,000, the amount that might be sustained by the various companies, on their knowing one location. He fixed the amount at $15,000. There was nothing said about percentages. That was not the conversation. So that how I discovered this I cannot tell you; but, when I did discover it, I meant to fill out the contract as entered into between Mr. Bradley and myself.”
On May 10th the policy was issued. On May 26th the agent of the insured wrote and mailed a letter to defendant’s agent, informing the latter of the tire and asking to have an adjuster sent out to spur No. 318 on the Soo Tine, where the fire occurred, and adjust the loss. The letter also stated:
“The Duluth Log Company were unable to report the loss any sooner because of the 1'act that their woodsman was away and the loss was reported as soon as they were able to ascertain the facts.”
At the trial the agent of the insured testified that the first he heard of the fire was a few days prior to the time when the Duluth Log Company notified him: and the testimony was that that notification was given about May 20th.
The policy issued was accepted and retained by the insured as conforming to the contract. On July 7, 1913, long after defendant had notice of the loss, it accepted and retained the premium, amounting to $405. The testimony shows that, if there had been a coinsurance clause in the policy, the premium would have been less. For weeks after the defendant received information of the loss no objection was raised by it that the policy in any way failed to express the contract between the parties. On August 23, 1913, the representative of the company in the United States, with whom all the negotiations leading up to the issuance of the policy were had, wrote the agent of the insured as follows:
“The form under which the insurance was written was drafted with the in-tenUon of carrying $50,000 insurance and an order was placed for $50,000. Tlie $50,000 insurance was not secured before the loss occurred, and it then developed that only §15,000 Insurance had been secured and all in one company. "While we are frank to admit that under a strict application of the conditions of the policy which the assured holds, in my opinion, the company would have little or no grounds on which to contest (and we do not think it is their intention to contest), at the same time the company never anticipated, when writing the policy, to be called upon to contribute the whole amount on ,a partial loss under such circumstances, and the company do feel that there are reasonable grounds for asking or expecting some compromise.”
And on September 20, 1913, in answer to a letter complaining of the delay in paying the loss, the defendant’s representative wrote:
“The claim up to date, we think yon will agree with us, is not an old one, and in accordance with the usual understanding of the policy form the com*838 pany lias 60 days from the date of the filing of the proof in which to make settlement. According to the records in our office, the 60 days have not as 5ret elapsed, and we assure you that there is no reason, so far as we know, for the assured and yourselves to he apprehensive. We anticipate the policy obligation in this instance will be discharged with the same courtesy and promptness that the company adopted during the early part of its existence, which custom has been continued.”
At the trial, however, the claim was advanced that the policy did not conform to the contract as it existed when the loss occurred, and that defendant proposed to show that this was so by introducing in evidence the letters and telegrams written prior to the loss. The plaintiff’s counsel objected on the ground that, where there is a written formal contract of insurance in evidence, parol evidence cannot be received to vary its terms. The trial judge agreed with this view of the matter, and struck out the telegrams and letters by which it was sought, to contradict the policy, and instructed the jury that the contract was to be found only in the policy. It is conceded that this rule would have applied if the fire had not occurred prior to the issuance of the policy, or prior to the changes, if any, which were made after the telegram of April 28th:
“Binding fifteen thousand each lumber Bradley, Duluth Dog. Send forms.”
But it is claimed the rule is inapplicable, because the policy actually differs in certain particulars from the contract as it existed when the loss occurred.
“The entire engagement of the parties, with all the conditions upon which its MAilment could he claimed, must be conclusively presumed to be there stated. If, by inadvertence or mistake, provisions other than those intended wore inserted, or stipulated provisions were omitted, the parties could have had recourse for a correction of the agreement to a court of equity, which is competent to give all needful relief in such cases. But until thus corrected the policy must be taken as expressing the final understanding of the assured and of the insurance company.”
So the Supreme Court in a more recent case (Hartford Fire Ins. Co. v. Wilson, 187 U. S. 467, 478, 23 Sup. Ct. 189, 47 L. Ed. 261) quotes approvingly a statement from Harnickell v. New York Life Ins. Co., 111 N. Y. 390, 18 N. E. 632, 2 L. R. A. 150, to the effect that all negotiations and agreements had prior to the issuance of the policy are to be deemed merged in the policy. The Court of Appeals of New York in Walton v. Agricultural Ins. Co., 116 N. Y. 317, 322, 22 N. E. 443, 5 L. R. A. 677, declared that “a policy of insurance is presumed to embrace the entire agreement of the parties.” In 16 Am. & Eng. Encyc. L. (2d Ed.) p. 856, the rule is stated as follows:
“The policy of insurance is the final contract between the parties, and the effect of its acceptance is to supersede all preliminary agreements in respect to insurance.”
“In absence of fraud or mutual mistake fhe written contract, if Hiere be one, is the best and only admissible evidence oí what the contract is as to all matters which it purports to cover.”
“There is no legal nor moral obligation resting on the assured to voluntarily notify the company of a loss occurring after the risk has attached, although the policy has not been delivered nor the premium paid.”
The author cites Keim v. Home Mutual Fire Ins. Co., 42 Mo. 38, 97 Am. Dec. 291; American Home Ins. Co. v. Patterson, 28 Ind. 17. The insured knew thé risk had attached, and he knew nothing of the communication relating to the substitution of one set of forms for another; and the broker who forwarded that communication had at the time no knowledge of the loss. No fraud can be attributed to him, because he failed to give notice of what he had no knowledge of until many days afterward. The insured at no time made any misrepresentations, and at no time withheld any facts which it was under either a legal or a moral obligation to make known.
“The eases in which mistake affects contract are the rare exceptions to an almost universal rule that a man is bound by an agreement to which he has expressed a clear assent, uninfluenced by falsehood, violence, or oppression.”
Nevertheless mistake may be such as to prevent any real agreement from being formed, in which case the agreement is not merely voidable, as in the case of fraud,’ but is absolutely void, both at law and in equity. In the case at bar, however, there was no mistake as to the party contracted with, and no mistake as to any of the terms of tire contract. The contract made was in all respects the identical contract each of the parties intended it to- be. It is conceded, however, that every agreement müst have a subject-matter to operate upon. There is a general rule that, if the parties agree in regard to a thing which unknown to them does not .exist at tire time, there is no contract, for there is no subject-matter. If parties agree to sell a picture or a building, and at the time of the sale the picture or the building is not in existence, that fact being unknown at the time to the parties to the agreement, there is no contract. _ And so in the law of fire insurance, if at tire time the risk attaches the property insured is not in existence, the parties being ignorant of the fact at the time, the rule is that there is no valid insurance. But that principle had no application to a case where the policy issued was antedated to a period prior to the fire. In that case the fact that the property insured was not in existence does not invalidate the policy. Thus in Hallock v. Commercial Ins. Co., 26 N. J. Law, 268 (1857), the facts were as follows: The policy was signed at Jersey City, N. J., on March 13, 1855. It insured property at Bath, N. Y., from March 10, 1855, noqn, for a period of one year. It was mailed to the agent of the insurance company at Bath, with instructions to deliver it. The agent did not in fact receive it until March 16th. It
“They intentionally made the year’s risk commence from the 10th. It the lire had occurred on the 13th March, 3856,- instead of 1855, under this policy the defendants could not have been held liable. When they filled up the policy, they elected to take the premium from the 10th. They took their pay for the very time during which the fire occurred, and thus say now, in effect, this is a very good policy from the 10th to the 13th, if no fire occurs, but a void one if there does. The question, therefore, really is: Is a contract to insure figainst fire from a time past void in law? No decision or authority or principle sustaining such a doctrine lias beeg. referred to before us. It is every day’s practice in both marine and fire insurance. A contract is good, unless shown to. bo against good morals or sound policy. I do not see how this contract contravenes either, or what difference in principle there can be between insuring from a time past and a time to come. Many cases will be found recognizing the validity of such contracts. Lightbody v. N. American Ins. Co., 23 Wend. (N. Y.) 18; Perkins v. Washington Ins. Co., 4 Cow. (N. Y.) 615; Kohne v. Ins. Co. of N. America, Fed. Cas. No. 7,920; General Interest Ins. Co. v. Ruggles, 12 Wheat. 408, 6 L. Ed. 674; New York Cent. Ins. Co. v. Nat. Protection Ins. Co., 20 Barb. (N. Y.) 475.”
In the case at bar the policy took effect by relation from the day of its date. Lightbody v. N. Am. Ins. Co., 23 Wend. (N. Y.) 18 (1840). By antedating the policy the defendant assumed the retrospective risk for which it provided, in the same manner as if it had been issued on the day it bore date. Hughes v. Mercantile Mutual Ins. Co., 44 How. Prac. (N. Y.) 351, 355. It is therefore wholly immaterial in the case at bar that at the time the policy issued or the risk attached the property insured was not in existence; it having been in existence within the period covered by the terms of the policy.
The changes in the policy suggested by the agent of the insured in the telegram sent on April 29 th were forwarded without the knowledge of the insured, and were to correct the agent’s own mistake of the, previous day and make the policy conform to the original instructions given to the agent by the insured. As the agent had no knowledge of the loss, he was under no obligation to impart what he did not possess; and as the insured understood that the insurance had been secured according to his instructions and did not know of this telegram of April 29th he was not at fault; and as the loss occurred within the period covered by the policy, neither the insured nor its agent being in any way at fault, the company cannot escape the liability it assumed when it antedated its policy, unless there is some other ground than the fact that the contract as expressed in the policy was not in all of its terms agreed upon until after the fire.
•‘The regular binder is tbe same thing in effect as the usual policy, for which it stands as a convenient, temporary substitute, and, whether it so states or not, embraces by inference all the clauses of the policy,”
If the defendant had never issued a policy, and the proposition of the Duluth Log' Company had been correctly transmitted by its agent to the defendant’s agent, and accepted by it by the delivery of the “binder,” there could be no question but that defendant would have been bound. But the fact seems to have escaped the attention of counsel on both sides that on April 2§th the minds of tire insured and the insurer.had not met. That they had not met is shown by the testimony of the agent of the insured, and already mentioned, that in sending on the first “forms” he had not conformed to his instructions, and that on April 29th he sent forward the second “forms” in order to rectify his previous mistake. If this is the fact, we do not see that any contract existed on April 28th. But that fact is immaterial in view of the subsequent issue of the policy, which merged all prior negotiations and was antedated to make the risk attach on April 28th; both the insured and its agent being blameless in respect thereto.
’ Courts must take due care to see that parties are not held to contracts they do not make. But they must also exercise due care to see that contracts which the parties do make are performed in good faith according to their terms. It is particularly important that insurance companies, which issue policies of insurance to applicants blameless throughout the negotiations, should not be permitted to avoid those policies, or the contracts into which they entered, unless good and valid reasons are shown which justify invalidating the contracts. In the case at bar we are unable to find that a meritorious defense to the action exists.
Judgment affirmed.
Dissenting Opinion
(dissenting). I am unable to concur with the majority of the court. This action is not brought on tire policy of
It is manifest that the main issue which the parties came into court to try was this: “What contract was entered into on April 28th?” Upon that question proof was introduced, written proof, which stands upon the record wholly uncontradicted. To my mind that proof establishes conclusively what were the terms of the contract. On April 21st the Duluth Company asks for a floater policy on timber products in Minnesota, covering $50,000 at a rate “not to exceed two fifty net.” The next day the insurance company replies by telegram and mail asking that forms be forwarded, stating that it could not advise definitely as to acceptance of the proposition until it had a copy of the form; also that it would require a coinsurance clause equal to 90 per cent, and a limit of loss by any one fire — a plain statement that the whole amount of the floater insurance was not to be absorbed by fire at a single place. By telegram and letter of April 22d and 23d the Duluth Company replied, stating that it was willing to pay gross rate of 3 per cent, premium; also that it would agree to an 80 per cent, clause, instead of the 90 per cent, suggested; also that it would agree to limit loss by any one fire to 30 per cent, of the face of the policy. All these negotiations, of course, included the making of a policy in the standard form, with the usual provisions as to care of property, date of notification, proofs of loss, etc.
Such, then, was the proposition before the insurance company; its terms specifically covering the matter in controversy here, viz., 'the limitation of loss by' a single fire. The total amount asked for was $50,000. This proposition the insurance company accepted, with the single modification of the total amount to $15,000. That this acceptance made a binding contract is conceded. If nd binding contract was made before the fire occurred, plaintiff under the pleadings would have no case at all. Of course, it was in the power of the parties, who had made this binding contract in express terms, subsequently by agreement to modify any one of those terms. But no1 such modification was made, or even attempted to be made, until after the occurrence of the fire while the contract was in force, which crystallized the rights and
It does not seem to me that the well-settled rule that prior negotiations are merged in a subsequent written contract applies here, where it is asserted and must be shown as a condition of plaintiff’s recovery that there was a complete contract on April 28th, and where the event which the contract provided for occurred the next day. The agent of the insurance company, who had power to make the contract and agree to its terms, had also ppwer to modify or alter those terms at any time before the fire had created mutual rights and obligations; his agency would not, without proof of special authority, give him the power to give up rights of his principal which had become fixed and determined.
Nor do I think that there is any force'in the proposition that the telegram of May 1st sent by the insured and the testimony of its agent as to correcting a mistake in the forms sent changes the situation. To the defendant’s contention that the policy should be made to conform to the agreement, it is objected that this could be done only in a direct proceeding to reform the policy. The same objection may with equal force be urged against an attempt by plaintiff to reform the contract on the ground of mistake.