428 F.2d 989 (5th Cir. 1970), 28125, Charles Stores, Inc. v. Aetna Ins. Co.

Docket Nº:28125.
Citation:428 F.2d 989
Party Name:The CHARLES STORES, INC., Plaintiff-Appellant, v. AETNA INSURANCE COMPANY, Defendant-Appellee. The CHARLES STORES, INC., Plaintiff-Appellant, v. HARTFORD FIRE INSURANCE COMPANY, Defendant-Appellee.
Case Date:July 01, 1970
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 989

428 F.2d 989 (5th Cir. 1970)

The CHARLES STORES, INC., Plaintiff-Appellant,



The CHARLES STORES, INC., Plaintiff-Appellant,



No. 28125.

United States Court of Appeals, Fifth Circuit.

July 1, 1970

Page 990

Joseph S. Mead, Mead, Norman & Fitzpatrick, Birmingham, Ala., for plaintiff-appellant.

Thomas H. Watkins, Watkins & Eager, Jackson, Miss., Fred C. DeLong, Jr., Campbell, DeLong, Keady & Robertson, Greenville, Miss., for defendants-appellees.

Before JONES, BELL and GODBOLD, Circuit Judges.

GODBOLD, Circuit Judge:

In these consolidated removed cases appellant Charles Stores, Inc., having suffered a fire loss, sued to recover on two insurance policies, one issued by Hartford Fire and the other by Aetna Insurance Company. The jury rendered a general verdict for the defendants. We reverse and remand for a new trial because of error relating to the issue of whether the insurers had waived policy defenses.

The policies were special multi-peril policies covering real and personal property in three Charles Stores in three Mississippi cities. Also they contained coverages for liability, medical payments, employee dishonesty and other crimes, and motor vehicle coverage, at all three store locations. Each provided for a retroactive premium adjustment plan under which provisional premiums were paid and the actual premium calculated upon expiration or cancellation on the basis of information furnished by the insured, with a refund of premium or payment of additional premium as appropriate.

On November 18, 1964 a fire occurred in appellant's Greenwood, Mississippi, store resulting in extensive damage. The source of the fire appears to have been an incendiary device, which the insurers claim was placed there by Virgil Thompson, a vice president and director of Charles Stores, Inc. Six days after the fire appellant and the insurers entered into a non-waiver agreement the pertinent terms of which are set out in our discussion below.

The insurers asserted numerous policy defenses. The District Court submitted to the jury only these: (1) fraud and false swearing in connection with proof of loss; (2) suspension of coverage from increase of hazard; (3) suspension of coverage for failure to maintain protective safeguards, consisting of the sprinkler and alarm systems.

Both policies were for a term expiring June 5, 1967. To support its claim that the policy defenses had been waived appellant offered evidence that, with knowledge by the insurers of the policy defenses, the policies had been continued in force and then cancelled. As to Aetna, Charles Stores offered evidence that seven days after the fire it paid to Aetna a premium of $572, and that, by a

Page 991

notice dated February, 2, 1965, Aetna cancelled its policy effective February 13, 1965 and in connection therewith retained the premiums earned to February 13 and returned as unearned the excess previously paid. The notice stated no reason for cancellation. As to Hartford, appellant offered evidence that, by letter dated November 3, 1965, it had cancelled its policy effective December 1, 1965, for the stated reason that it had reviewed the risk, reunderwritten the account, and under its present underwriting program did not desire to continue the coverage, and that in January, 1966, Hartford sent a bill for additional premium due of $1274.00, as recalculated on a pro rata cancellation basis, which appellant paid. The court sustained objections to all of this evidence.

There is no merit to the contention of appellant that it was entitled to a directed verdict on each of the above three policy defenses. The facts and circumstances do not 'point so strongly and overwhelmingly in favor of one party * * * that reasonable men could not arrive at a contrary verdict.' Boeing Co. v. Shipman, 411 F.2d 365, 374 (5th Cir. 1969).

1. The fraud and false swearing defense.

There was evidence that in marking down from retail to wholesale the value of inventory on hand at the time of fire appellant used the factor of 25% As the markup to be deleted, but that before the fire it customarily had used 30% Or 33 1/3% As a fair markup, and that...

To continue reading