Muslin v. Frelinghuysen Livestock Managers, Inc.

• Decision Date: 21 November 1985
• Docket Number: 84-3066,Nos. 84-2993,s. 84-2993
• Parties: Steven B. MUSLIN and Lynn G. Muslin, Plaintiffs-Appellants, Cross-Appellees, v. FRELINGHUYSEN LIVESTOCK MANAGERS, INC., Monarch Insurance Company of Ohio and Howard Klohr, d/b/a Howard Klohr Agency, Defendants-Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1230

777 F.2d 1230

Steven B. MUSLIN and Lynn G. Muslin, Plaintiffs-Appellants Cross-Appellees, v. FRELINGHUYSEN LIVESTOCK MANAGERS, INC., Monarch Insurance Company of Ohio and Howard Klohr, d/b/a Howard Klohr Agency, Defendants-Appellees Cross-Appellants.

Nos. 84-2993, 84-3066.

United States Court of Appeals Seventh Circuit.

Argued Sept. 17, 1985.

Decided Nov. 21, 1985.

Douglas K. Morrison, Marconi & Morrison, Chicago, Ill., for plaintiffs-appellants.

James P. DeNardo, McKenna, Storer, Rowe, White & Farrug, Chicago, Ill., for defendants-appellees.

Before ESCHBACH, EASTERBROOK and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

Plaintiffs Steven and Lynn Muslin (Muslin) brought this diversity action ¹ against defendants Frelinghuysen Livestock Managers, Inc., Monarch Insurance Company of Ohio and Howard Klohr (collectively Frelinghuysen) to recover the proceeds of a $50,000 mortality insurance policy on the racehorse, Gymnast. Plaintiffs allege that ownership of both the horse and the insurance policy on the horse's life had been transferred to them by Selma and Edward Levy (Lynn Muslin's parents). Edward Levy was, at the time of the alleged transfer, an agent of the insurer, Frelinghuysen. The district court decided that Levy was without apparent authority to bind Frelinghuysen and that Muslin could not have relied to his detriment on any such representations of authority.

The plaintiffs' appeal is based on two distinct estoppel theories. First, Muslin asserts that, since the transfer of ownership of the horse did not increase the risk of loss, the company should be estopped from enforcing the forfeiture provisions of the policy. Additionally, Muslin claims that he relied to his detriment on Levy's apparent authority to effect transfer of the livestock mortality policy to him. Frelinghuysen cross-appeals the district court's denial of attorneys' fees and costs. For the reasons set forth below, we affirm the decision of the district court on the questions of estoppel, apparent authority and attorneys' fees, and we reverse on the question of costs.

FACTS

This case involves the untimely demise of the racehorse, Gymnast. Originally, Gymnast was one of many horses owned by Edward Levy. Shortly after purchasing Gymnast at auction, Edward Levy gave the horse to his wife, Selma. Mr. Levy was also president of LAC Industries, Inc., an insurance brokerage, and an agent of Frelinghuysen. Levy's agency agreement with Frelinghuysen authorized him to receive proposals on new insurance and to issue temporary binders for horses bought at public auction. However, section III of the agency agreement stated that issuance of insurance was the sole province of the insurer and that the agent was prohibited from exercising rights or powers reserved According to the district court, in February 1978, Mrs. Levy informed Lynn and Steven Muslin--her daughter and son-in-law--that she was giving them the horse. No formal transfer was effected; the transfer was oral. The only tangible evidence of the transfer, the certificate of registration issued by the United States Trotting Association, was dated April 24, 1978. Even the "Assignment of Insurable Interest," indicating that ownership had been transferred, was admittedly back-dated by the notary to February 14 although, in fact, it was not executed until after the horse's death on May 15. Appellants' Br. 6-7.

to the company under the terms of the policies issued by the company. The agreement also prohibited the agent from holding himself out as authorized to act on behalf of the company except as provided by the agreement. Trial Ex. 23.

Selma Levy held a mortality insurance policy on Gymnast, which was paid-in-full through November 1978 and which had been written through Frelinghuysen. General Condition No. 12 of the policy provided that the coverage of the horse would be voided if the policy were assigned or transferred without the company's written consent. Specific Condition No. 2 provided that transfer of any interest in the animal would result in the voiding of the policy.

Despite these provisions, written consent to the assignment was never obtained from Frelinghuysen by Muslin or by Edward Levy. The district court found that Levy did not tell Muslin that he would take care of the assignment of the policy until early May (not February as Muslin claims). Trial Tr. 216. As the district judge noted, the only tangible evidence of action by Levy to notify Frelinghuysen of the change of ownership is the correspondence between Levy and defendant Klohr in mid-May. Trial Tr. 216. On May 7, 1978, Levy contacted Howard Klohr and asked him, as a favor, to notify Frelinghuysen of the change in ownership. Klohr, like Levy, was only an agent and was, therefore, not empowered to authorize the assignment of the policy in violation of its terms. When the horse died of natural causes on May 15, 1978, Frelinghuysen refused to pay on Muslin's claim, maintaining that the policy was voided upon transfer of ownership and that the attempted assignment of the policy failed for lack of written consent by the insurer.

Plaintiffs then commenced suit against Frelinghuysen in the district court. In April 1981, the district court granted summary judgment for Frelinghuysen based on the facts that Selma Levy--the policy holder--did not own the horse at the time of its death and Muslin--the purported owner--did not own the insurance policy at the time of the horse's death. On March 30, 1982, by unpublished order, we affirmed the grant of summary judgment with respect to Levy's actual authority and reversed and remanded to the district court to decide whether Levy had apparent authority to waive the insurance policy provision requiring written consent to an assignment and, if so, whether Muslin reasonably relied on this apparent authority to his detriment. Muslin v. Frelinghuysen Livestock Managers, Inc., 679 F.2d 894 (7th Cir.1982), unpublished order at 4-5. If so, Frelinghuysen would be estopped from denying the validity of the policy.

On September 20, 1984, following a bench trial, the district judge announced a verdict for the defendants. However, he ordered Frelinghuysen to refund to Selma Levy $1200--the pro-rated amount of the premiums paid on the policy from the date that the policy became null and void. After trial, Muslin filed a motion for a new trial; Frelinghuysen asked for attorneys' fees and costs. Both motions were denied. It is from the September 1984 verdict and attendant denials of motions that these appeals were taken.

I

Muslin contends that Frelinghuysen should be estopped from enforcing the policy's forfeiture provisions because the transfer of ownership did not increase the risk of loss. This claim was not raised in the original or first amended complaint and First of all, we are not persuaded that this paragraph is adequate to state an estoppel claim. Indeed, the district judge's decision does not even mention this claim. Even if we were to find that paragraph 11 was sufficient to state a claim, we could not grant relief. It has been well-settled in New York since the time of Cardozo that provisions requiring written consent to assignments of insurance are valid and enforceable. See Truglio v. Zurich General Accident & Liability Ins. Co., 247 N.Y. 423, 160 N.E. 774 (1928). Judge Cardozo's statement in Truglio is applicable here:

was not addressed in our order regarding the grant of summary judgment. Muslin claims that paragraph 11 of the second amended complaint ² raises the forfeiture issue. That paragraph states: "Plaintiffs are informed and therefore believe that assignments of such insurance policies are routinely approved by Freylinghuysen [sic], absent extraordinary changes in circumstances surrounding the transfer of the horse and policy."

This is a case where the original party to the contract has dropped out altogether, transferring the whole title to others, who have no interest in the insurance unless a new contract has been made between them and the insurer. The policy of insurance in their hands was no longer "a live instrument," unless life was breathed into it again by force of a new assent responsive to a new offer.

160 N.E. at 774 (citation omitted). Selma Levy, by transferring ownership to Muslin, caused the policy to become null and void. The fact that care and maintenance of the horse remained unchanged is irrelevant in light of the policy's clear prohibition. In New York, "[w]here ... a liability policy requires the written consent of the insurer to effectuate the transfer of the insurable interest, the policy loses its force as a contract upon conveyance of the property without such consent." Meridian Trading Corp. v. National Automobile and Casualty Insurance Co., 45 Misc.2d 847, 258 N.Y.S.2d 16, 19 (1964) (citation omitted). Muslin has provided no relevant authority to the contrary. That the risk of loss was not increased by virtue of the change in ownership is irrelevant in light of the clear language of the insurance policy and the clear mandate of New York law.

II

Muslin's second estoppel theory is based on his allegation that Edward Levy was empowered to effect the assignment of the insurance policy. The issues, whether Edward Levy had apparent authority to waive the policy restrictions and whether Muslin reasonably relied on this apparent authority to his detriment, were fully litigated in the district court. The scope of our review of the district court's findings is narrow. As the Supreme Court recently stated:

[W]hen a trial judge's finding is based on his decision to credit the testimony of one of two or more witnesses, each of whom has told a coherent and facially plausible story that is not contradicted by extrinsic evidence, that finding, if not internally inconsistent, can virtually never be clear error.

Anderson v. City of Bessemer City, 470 U.S. ----, ----, 105 S.Ct. 1504, 1513, 84 L.Ed.2d 518 (1985). The scope of an...