Bartlett and Company, Grain v. Commodity Credit Corp., 16881.

• Citation: 307 F.2d 401
• Decision Date: 27 August 1962
• Docket Number: No. 16881.,16881.
• Parties: BARTLETT AND COMPANY, GRAIN, a Corporation, Appellant, v. COMMODITY CREDIT CORPORATION, a Corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

307 F.2d 401 (1962)

BARTLETT AND COMPANY, GRAIN, a Corporation, Appellant, v. COMMODITY CREDIT CORPORATION, a Corporation, Appellee.

No. 16881.

United States Court of Appeals Eighth Circuit.

August 27, 1962.

Ralph M. Jones, Kansas City, Mo., made argument for appellant and Charles B. Blackmar, Kansas City, Mo., with him on the brief.

Alan S. Rosenthal, Dept. of Justice, Washington, D. C., made argument for appellee and William H. Orrick, Jr., Asst. Atty. Gen., Washington, D. C., F. Russell Millin, U. S. Atty., Kansas City, Mo., Morton Hollander and Herbert E. Morris, Attys., Dept. of Justice, Neil Brooks, Asst. Gen. Counsel, Giles H. Penstone, John A. Harris, Attys., U. S. Dept. of Agriculture, Washington, D. C., with him on the brief.

Before VAN OOSTERHOUT and BLACKMUN, Circuit Judges, and HENLEY, District Judge.

HENLEY, District Judge.

Appellant, the owner and operator of a public grain elevator in Kansas City, Kansas,¹ brought suit in the District Court to secure an adjudication that appellee, Commodity Credit Corporation, an agency of the United States (Commodity), is obligated to bear a portion of the expense paid or incurred by appellant in connection with a suit brought by it in the Missouri State courts to enforce collection of insurance covering certain grain stored in appellant's warehouse, some of which grain was owned by Commodity, following loss of and damage to the grain in the course of the Kansas City Flood of 1951. Commodity denied that appellant was entitled to the relief sought and, in addition, filed a counterclaim demanding a monetary judgment against appellant. Commodity's share in the insurance proceeds, finally collected by appellant, including interest to March 6, 1957, was $251,049.04. The ultimate decision of the District Court was that Commodity was not required to share in the litigation expense in the State courts and was entitled to judgment in the sum above mentioned plus interest at the rate of six percent per annum from March 6, 1957, the date upon which the insurance companies satisfied appellant's judgment. The complaint was dismissed and judgment was entered on Commodity's counterclaim. This appeal followed.

Two questions are presented for decision, namely, whether the District Court erred in holding that Commodity was entitled to recover its full aliquot part of the insurance proceeds without diminution on account of appellant's expenses in effecting collection; and whether, assuming that the District Court did not err in holding that Commodity was so entitled, the District Court erred in awarding interest on Commodity's basic recovery.² The first question may be considered as presenting the principal dispute between the parties.

The essential facts in the case are substantially undisputed. They may be summarized as follows:

The flood occurred in July 1951, and the grain in storage was damaged on July 14 of that year. At the time of the flood Commodity owned 60.2 percent of the grain in appellant's elevator. Appellant itself owned 39.42 percent, and the remainder was owned by other persons holding warehouse receipts issued by appellant.

The rights and obligations of appellant and Commodity with respect to the latter's grain stored in the former's elevator were governed not only by appellant's warehouse receipts and by general Kansas statutes regulating public warehousemen, but also by a Uniform Storage Agreement executed by appellant and Commodity in 1950.

Section 15 of the storage agreement deals with insurance and is as follows:

"* * * Without in any way limiting his obligation under the other provisions of this agreement, the warehouseman shall insure and at all times keep insured, in his own name, all the grain for the full market value thereof * * * against loss or damage by fire, lightning, inherent explosion, windstorm, cyclone, or tornado, and, in the event of any loss or damage to the grain or to the warehouse, whether or not such loss was insured against, he shall immediately notify Commodity and the holders of the warehouse receipts * * * and he shall at his own expense promptly take the steps necessary to collect any moneys which may be due as indemnity for such loss or damage, including the bringing of suit, and, as soon as collected, shall pay to the holders of such warehouse receipts * * * such moneys as may be collected for the loss or damage. * * * The warehouseman shall pay to the holders of the warehouse receipts and certificates, in addition to the insurance proceeds, any amount by which the insurance proceeds are less than such full market value, whether resulting from failure to collect in full from the insurer, failure to obtain a policy affording full coverage, or failure to report the total value of grain on hand on the last reporting date under a reporting form of policy. In the event the warehouseman insures against hazards to the grain not specified herein, such insurance shall inure to the benefit of the holders of the warehouse receipts and certificates."

Appellant obtained policies or certificates of insurance covering all grain in the elevator and insuring against certain hazards including inherent explosions and other explosions. For its own protection appellant also obtained insurance against loss due to interruption of business by certain hazards. The explosion coverages of the policies protecting the grain were identical to the explosion coverages of the policies protecting appellant against loss due to interruption of business. None of the policies covered loss or damage caused by flooding as such.

When the flood waters entered the elevator, large quantities of grain were soaked and caused to expand. The effect of this expansion was such that about a third of the bins in which the grain was stored were caused to burst violently, and as the bursting proceeded, more and more grain came in contact with the water and was ruined.

On September 10, 1951, appellant, Commodity, and the other warehouse receipt holders entered into a written contract, referred to in the record as the Post-Flood Agreement. This agreement recognized the existence of a dispute between certain of the parties "as to the basis upon which the loss * * * shall be allocated." It provided among other things that money collected on account of insurance on the grain would be maintained in a separate account pending a determination as to the ultimate allocation of the loss either by agreement or by court judgment. It was further provided that nothing in the agreement should be construed as an admission of the applicability of any particular statute regulating public warehousemen, or of the correctness of any particular interpretation of any statute; and it was recognized that Commodity did not waive any rights under its Uniform Storage Agreement. The Post-Flood Agreement contained certain provisions as to salvage and other matters which are not of immediate concern here.

In order to bring the losses within the coverage of the policies it was necessary to characterize them as having been due to explosion rather than to flood. Proofs of loss were prepared based on that characterization and were presented to the insurance companies which refused to recognize liability under the policies. Appellant then filed suit against the companies in the Circuit Court of Jackson County, Missouri, and after protracted, hotly-contested, and expensive litigation, appellant finally prevailed. Hart-Bartlett-Sturtevant Grain Co. v. Aetna Insurance Co., 365 Mo. 1134, 293 S.W.2d 913, cert. den. 352 U.S. 1016, 77 S.Ct. 562, 1 L.Ed.2d 548.³

On August 13, 1953, an official of appellant addressed a letter to an official of Commodity's Kansas City, Missouri, office, discussing a number of related matters and proposing a basis of settlement of the loss. In the letter appellant took the view that the insurance coverage invoked by appellant in the State court litigation was not required by the Uniform Storage Agreement, and the suggestion was made that Commodity either agree to participate in the litigation expense or that it waive participation in any insurance proceeds. In its reply to that letter Commodity did not refer one way or the other to the suggestion relative to the expense of the State court litigation.

On September 17, 1954, appellant and Commodity entered into a written contract relating primarily to salvaged grain, but referring to the insurance litigation. As to that litigation it was recognized that Commodity by entering into the contract did so without prejudice to such rights as it might have to recover a part of any proceeds of the State court suit.

About the middle of January 1958, almost a year after the State court judgment had been satisfied, appellant submitted to Commodity a statement of account showing an allocation of the grain recovery and of the expenses incident thereto.⁴ That statement showed that Commodity's share of the proceeds of the insurance on the grain should be charged with expenses amounting to approximately $80,000 and that there was due Commodity the net sum of $179,351.47. The statement was accompanied by appellant's check in the amount just mentioned, which was tendered in full satisfaction of Commodity's claim.

Commodity refused to accept appellant's check in full settlement of the claim and returned the check on January 27, 1958. Commodity stated that it was willing to consider the $179,351.47 figure as an offer in compromise. Negotiations between the parties went on for the remainder of 1958, but Commodity at length refused to accept less than its full aliquot part of the insurance recovery without any diminution on account of appellant's litigation expense, it being Commodity's position that it was the obligation of appellant under the Uniform Grain Storage Agreement to institute and prosecute the State court litigation at its own expense. Negotiations having failed, this suit was filed in January 1959.

The basic dispute between ...