Shelby County Trust & Banking Co. v. Security Ins. Co.

• Citation: 66 F.2d 120
• Decision Date: 30 June 1933
• Docket Number: No. 6269.,6269.
• Parties: SHELBY COUNTY TRUST & BANKING CO. et al. v. SECURITY INS. CO. OF NEW HAVEN, CONN.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

66 F.2d 120 (1933)

SHELBY COUNTY TRUST & BANKING CO. et al. v. SECURITY INS. CO. OF NEW HAVEN, CONN.

No. 6269.

Circuit Court of Appeals, Sixth Circuit.

June 30, 1933.

David R. Castleman, of Louisville, Ky. (R. F. Matthews, of Shelbyville, Ky., on the brief), for appellants.

F. M. Drake, of Louisville, Ky., for appellee.

Before HICKS, HICKENLOOPER, and SIMONS, Circuit Judges.

HICKENLOOPER, Circuit Judge.

The present controversy arises under a policy of fire insurance issued by the appellee upon a vacant warehouse, the property of the Consolidated Realty Company. This policy contained the provision that it "shall be cancelled at any time at the request of the insured; or by the company by giving five days' notice of such cancellation." It also provided: "This entire policy, unless otherwise provided by agreement endorsed hereon or added hereto, shall be void * * * if the hazard be increased by any means within the control or knowledge of the insured." To the policy was attached the National Board standard mortgage clause, to the effect that loss, if any, should be payable to the Shelby County Trust & Banking Company, as mortgagee (or trustee), as such interest may appear, and the Consolidated Realty Company, guarantor of the bonds; and that as to the interest therein of the mortgagee or trustee, the policy "shall not be invalidated by any act or neglect of the mortgagor or owner * * * nor by any increase of hazard." This mortgage clause also provided that "on payment to such mortgagee (or trustee) of any sum for loss or damage hereunder, if this company shall claim that as to the mortgagor or owner no liability existed, it shall to the extent of such payment be subrogated to the mortgagee's (or trustee's) right of recovery and claim upon the collateral to the mortgage debt. * * *"

The premises were subsequently rented for the storage of bales of rags removed from a warehouse in which a fire had previously occurred. These rags had been wet at the time of that fire and the evidence is clear and convincing that thereby the danger of heating, and of spontaneous combustion, was greatly increased. This was an increase of the fire hazard, within control and knowledge of the insured, under the policy provision. These facts having come to the knowledge of the appellee, that company wired its agents to "cancel" the policy "immediately." This telegram was confirmed by a letter in which the reason for the action was stated and the agents were instructed to "take up this policy at once, relieving us of all liability." This telegram and letter were shown to the president of the realty company, the owner and insured, and in addition to this the insurer's state agent personally informed the vice president of the realty company that such occupancy was unacceptable to his company on account of the increased hazard and that the insurance could not be continued.

A fire occurred and the loss was suffered, through spontaneous combustion of the rags in question, within five days of the events last above stated and the appellant owner contends that the notice given by the insurer constituted an election to "cancel" the policy under the so-called cancellation clause, which automatically kept it in force for five days, and that if any right existed to declare a forfeiture of the policy at that time, because of the increased hazard, that right was waived...