Aetna Ins. Co. v. Johnson

• Decision Date: 14 February 1907
• Citation: 56 S.E. 643,127 Ga. 491
• Parties: AETNA INS. CO. v. JOHNSON.
• Court: Georgia Supreme Court

56 S.E. 643

127 Ga. 491

AETNA INS. CO. v. JOHNSON.

Supreme Court of Georgia

February 14, 1907

Syllabus by the Court.

What is commonly known as the "iron-safe clause" in a policy of fire insurance, requiring the insured to "keep a set of books which shall clearly and plainly present a complete record of business transacted, including all purchases, sales, and shipments, both for cash and credit," is a promissory warranty.

Such promissory warranty must be complied with. But, in determining what it requires, a fair and liberal construction is to be placed upon it, so as to effectuate the contract of indemnity, rather than defeat it.

Where a small store or "commissary" in the country was conducted in connection with a lumber business, and tickets were given to the employés for the sums due them for work which were treated as cash at the store, the amount of purchases being indicated on the ticket by a punch and entered as a cash sale, and where it appeared that there were no credit sales, but the aggregate of such sales each day was entered at the close of the day, and that all goods were sold at a profit of from 25 to 50 per cent., it cannot be said as matter of law that this was a violation of the requirement as to keeping books.

Where a merchandise account was kept as showing goods purchased, the aggregate amount of the whole being $558,87, and where some of the items stated the character of the goods and their price, but there were other items aggregating in amount nearly one-half of the whole sum, which merely stated the name of some person or firm, with the added word "bill," and an amount, in the absence of any other evidence to show that there was in this regard a compliance with the requirement as to keeping books, it does not on its face appear to meet such requirement.

There was sufficient evidence to the effect that the company through its agent, knew that the house insured stood on leased ground at the time when the application was made and the policy issued, and thereby waived a provision in the policy that it should be void if the building insured was on land not owned by the insured in fee simple, to authorize a submission of the question to the jury.

Whether a clerk of the agent could waive such a provision, or whether it would make any difference if the agent referred the applicant to his clerk or assistant, are questions not distinctly made in the record, so as to require a decision of them.

Error from Superior Court, Colquitt County; R. G. Mitchell, Judge.

Action by W. A. Johnson against the Aetna Insurance Company. From a judgment in favor of plaintiff, defendant brings error. Reversed.

T. H Parker and Shipp & Kline, for plaintiff in error.

Payton & Hay and Humphreys & Humphreys, for defendant in error.

LUMPKIN J.

1-3. Johnson brought suit against the Aetna Insurance Company on a policy of insurance covering a stock of goods and the building containing them. After a verdict for the plaintiff the defendant moved for a new trial, which was refused, and it excepted. Two grounds for reversal are urged here: (1) That the plaintiff did not comply with the requirements of what is commonly known as ""the iron-safe clause" of the policy, or that portion of it touching the keeping of a set of books; (2) that the policy provided that it should be void "if the interest of the insured be other than unconditional and sole ownership, or if the subject of insurance be a building on ground not owned by the insured in fee simple"; that the building covered by this policy was on leased ground, and that, therefore, the policy was void.

4. What is known as "the iron-safe clause," attached as a part of the policy, provided that "the following covenant and warranty is hereby made a part of this policy *** The assured will keep a set of books, which shall clearly and plainly present a complete record of business transacted, including all purchases, sales, and shipments, both for cash and credit, from date of inventory as provided for in first section of this clause, and during the continuance of this policy." This clause has been held to be a promissory warranty in law, and not a mere representation. Southern Ins. Co. v. Knight, 111 Ga. 628 (2), 629, 36 S.E. 821, 52 L.R.A. 70, 78 Am.St.Rep. 216; Scottish Union Ins. Co. v. Stubbs, 98 Ga. 754, 27 S.E. 180. As to whether an exact compliance with its terms is required, or whether a substantial compliance will suffice, the decisions are not in perfect accord. Our law of insurance had its beginnings in marine insurance; and Lord Mansfield, in respect to marine policies, under the state of insurance business as it then existed, took the former view. Pawson v. Watson, Cowp. 785; De Hahn v. Hartley, 1 Term R. 343. And other cases have followed more or less closely these precedents. Yet as early as 1704, in Bond v. Gonsales, 2 Salk. 445, it was held that "deviation or not must be construed according to usage." That was a case where a policy was issued on a ship sailing from Bremen to London, warranted to depart with convoy. It actually sailed first to Elbe. The report states that "it was ruled per Holt, C.J., that the voyage ought to be according to usage, and that their going to the Elbe, though in fact out of the way, was no deviation; for, till after the year 1703, there was no convoy for ships directly from Bremen to London." And see Pelly v. Royal Exchange Assurance Co., 1 Burr. 347, 350, and Tierney v. Etherington, there cited. In the development of the insurance business in modern times the conditions and circumstances of the parties, the character of the contracts, and the relation of the parties to them, have produced a weight of authorities which have been applied to cases and in a manner not within Lord Mansfield's reasoning. Without entering into an extended discussion of the subject of warranties, it may be said that the current of authority as to what is known as the "iron-safe clause" is to the effect that it must be complied with, but that a reasonable, rather than a narrow and close, construction will be given to such clause to prevent a forfeiture of the policy.

In Western Assurance Co. v. McGlathery, 115 Ala. 213, 22 So. 104, 67 Am.Rep. 26, 29, 30, Brickell, C.J., makes use of the following language, in considering the subject of substantial compliance, which is quoted at some length "This clause, now almost universally introduced into policies of insurance of merchandise kept for sale against loss by fire, has been of frequent consideration by the courts, and most usually it has not been subjected to any narrowness or closeness of construction. Legal effect has been given it for the purpose of guarding the insurer against the fraud or imposition of the insured; but it has received a fair, reasonable interpretation, so that it may not work forfeitures, or defeat the claim of the innocent insured to the indemnity promised by the policy. *** If there must be precise, exact compliance with the clause, it would be difficult to determine and declare of what the compliance must consist. What is the degree of clearness and plainness which must be observed in the entries on the books? Is it that degree which will be satisfactory to an expert, scientific bookkeeper? If so, what system of bookkeeping must be observed? There are rival systems of bookkeeping, and the adepts in the one may regard the other as wanting in plainness and clearness. Or is it the degree which will satisfy the mind of the inquirer after the true state and condition of the business, not seeking to work, or to avoid a forfeiture of the indemnity of the policy? How many books, and of what description, will constitute a set? Can it be said or supposed the minds of the insurer and the insured met, and would have given a common answer to these inquiries? Their minds did come together on the essence and substance of this clause, when its words are looked through, that it was the duty of the insured to preserve in intelligible form, in one or more books of his own choice, written evidence of his purchases, of his sales, and of his shipments. If such evidence be preserved, the insurer is guarded against the fraud and imposition of the insured; and this is the purpose to be accomplished. There is no literal, hypercritical interpretation of the words of any contract. 'In all cases policies of insurance are liberally construed in favor of the insured, so as not to defeat, without a plain necessity, his claim to the indemnity, which, in making the insurance, it was his object to secure.' 1 May on Ins. § 185." In Liverpool Ins. Co. v. Ellington, 94 Ga. 785, 21 S.E. 1006, it was said: "It was not indispensable that the set of books kept should embrace what is usually termed a 'cashbook,' or that the books should be kept on any particular system or in a manner to render it easy rather than slow and difficult to ascertain the amount of purchases and sales and distinguish cash transactions from those on credit. It was enough that these matters would be ascertainable from the books with the assistance of those who kept them, or who understood the system on which they were kept." "The books must show with reasonable certainty a complete record of the insured's business transactions, including purchases and sales for cash or credit;" but "it is not necessary that the books should be kept according to any particular system, nor that they should be such a scientific system of books as would satisfy an expert accountant in a large business house in a city." 2 Cooley, Ins. Brfs. 1822-1824. In Catlin v. Springfield Fire Ins. Co., 1 Sumn. 441, Fed. Cas. No. 2,522, Judge Story said that "we must interpret these instruments in a reasonable manner, from the nature and objects of the parties." In Standard Fire...